This evening I randomly walked around the surrounding forest whilst the sun set. Despite being late spring, the air was cool and humid. Over the previous 24 hours, a storm had dropped more than an inch of rain over the farm, and the ground, trees and everything else was wet.
Walking under the canopy of the wet forest, and among the huge Eucalyptus trees, I picked up fallen branches as I ambled along. A windstorm earlier in the week had caused many dead branches to fall to the ground from way up high in the canopy. Some of the older trees reach heights of 50m / 165ft or more, and clearly they have plenty of branches to spare, as I regularly have to pick up the fallen ones.
My walk was in no particular direction and I just wandered here and there. During the walk I had a good chance to look around at the plant life in the forest. Spring is a beautiful time of year, and the native sticky everlasting flowers (Xerochrysum viscosum) have only just begun producing their upright stalks. They thrive under the canopy of the Eucalyptus trees, but then so do a lot of other plants, and I was pleased to note that there was a very good diversity of plants growing.
The fallen branches were deposited onto an area in the forest where I intend to burn them off. The ash from burning off of the fallen forest materials, produces great fertiliser. Previous burn off sites inevitably become ‘Fairy Rings’ of highly fertile plants. And the various animals which live in the forest dine upon the mineral rich plants to their benefit. The manures of the well fed animals spread the fertility randomly about the landscape.
Humans have lived with the Eucalyptus forests here in this mountain range for more millennia than I can even begin to understand. And all through those long years they acted as part of the forest itself, as indeed they were. By way of contrast, European settlers have long since believed that they don’t need to be involved in the management of the forests. I guess that there is some sort of belief that an ‘invisible hand’ will somehow make the forests healthy and less prone to extreme wildfires. That sort of thinking doesn’t actually work, but then maintaining a healthy forest actually is hard work. And if people can get out of doing hard work, I’ve noticed that they will make the attempt, even if it means believing in ‘invisible hands’.
Down here people have become a bit spooked. Usually they are spooked about wildfires, but this year they are spooked about the two most recent drops in official interest rates. The Reserve Bank of Australia recently lowered its official cash rate, or more technically the overnight money market interest rate. It is now at an historical low of: 0.75%
Chapter I: Government economic policy defies community expectations
Few people discuss management of forests with me, but because of my profession, a whole bunch of people talk to me about economics and money. I’d like to talk more about forest management, but I guess people tend to feel that an ‘invisible hand’ will look after all that, so I don’t get to talk about it. Instead I end up talking to people about the two recent drops in official interest rates, if only because they appear to have spooked people. The other week a person working for a bank surprised me by giving me a candid opinion on the subject, which confirmed to me that they too were spooked. And I’ve been inadvertently involved in plenty of other conversations on the matter. It is fair to say it’s on peoples mind down here.
Chapter II: The community is crazy in love with debt
Down here, household debt to income ratios are something crazy like 190%. It is an impressive effort because I believe it is the second highest in the world. And in my opinion the prices of houses is just plain old wrong. The job of the ‘invisible hand’ of economics is always to seek to find an equilibrium. If house prices drop, people whom are otherwise now excluded from the housing market, may just be able to purchase a house without having to get into so much debt. However, for heavily indebted people (i.e. the people causing the debt to income ratio to be at such crazy highs), they might find themselves owing more than what the house is worth – and that means they’ll be unable to borrow further against the value of the house in the future (thus unable to take the crazy highs, err, to something higher). It’s all an ugly business, and in Australia people cannot simply legally walk away from their mortgages like they can in other countries.
Chapter III: The solution to a lack of mad cash – Interest only loans
However, the reality is that the situation is far more complicated than that. A few years ago the banks wanted people to borrow more money (and increase the crazy highs) for housing. Back then, something like 40% of all mortgages were ‘interest only’ mortgages. The banks love these things, because the mortgages cost less day-to-day mad cash for the borrowers (because the borrower only pays the interest on the loan, and no part of the loan balance itself is repaid – until the end of the loan when the whole lot has to be repaid all at once). This means that the borrowers can borrow more and the interest paid stays the same each year, which is great for the banks. The banks in turn can sell off the loans to investors, who want a fixed return on their investments. Everyone wins – so long as house prices don’t drop.
Chapter IV: The dark side of the loan – Negative equity
If house prices did drop, people may find that the loans are greater in value than the selling price of the house. This is known as negative equity, but the loan still has to be repaid when it ends. How is that final repayment then possible? In other markets, it is known as a margin call, which were at the heart of the Great Crash of 1929.
Chapter V: All good things come to an end – Fixed terms
There is only one other minor little problem with these interest only loans, and that is that they’re provided for only a fixed period of time – usually around 5 years. During the 5 years, the borrower may be tempted to increase their household debt to income ratio. Given the borrower has plenty of free mad cash because they’re not actually paying off the loan, banks / finance companies have been happy to loan them more mad cash, for fun things like new cars, refrigerators, holidays, expensive dog food etc. But all good parties come to an end eventually, and at the end of the 5 years, the loan finishes and people then have to reapply for a brand new replacement loan.
Chapter VI: Full up to their eyeballs – A decreased appetite for risk
This Australian Story began a couple of years ago now (the dark ages). In these now enlightened times, with so many of these interest only loans coming to an end, there are heaps of people having to reapply for their loans – for the thing which keeps the rain off their heads (i.e. their house). And the borrowers are finding that banks are losing their appetite for risk, and have reduced the supply of new interest only loans. So borrowers might have to now begin repaying the actual loan principle – and they might not have enough mad cash with which to do so.
Chapter VII: A cunning plan – Soften the blow
Without intervention, the ‘invisible hand’ of economics would probably take a really hefty axe to this set of extreme circumstances. But no. I believe that the government wants to soften the blow, so they’ve lowered official interest rates recently so as to maintain things as they are. Lowering the interest rate means that borrowing is cheaper and the folks who became caught up in the interest only loan story might actually be able to afford to make repayments. What interesting times we live in! However, I personally wish the powers that be spent more time and effort into managing the forests, but maybe that’s just me.
Chapter VIII: The dirty little secret
In these enlightened times, governments around the world appear to be spending more mad cash each year than they are raking in. Fortunately for them, they can print mad cash at will, which is an impressive effort. Who wouldn’t want to be able to do that trick? Unfortunately, the government also has to use some of this printed mad cash to repay its own loans. And lower interest rates assists mightily with that little problem. The further governments get into debt, the more pressure they’ll be under to reduce interest rates. I kind of feel sorry for them, because this policy inevitably leads to hyper-inflation, but no doubts smarter brains than mine are enjoying considering the problem.
Chapter IX: In the real world
Speaking of economic matters, I went to visit the local stock feed store the other day, and the chicken feed (which lasts about a month) has increased in price to $62. Only a year or two back the same feed cost $50. And petrol (gas) prices are now hovering around $1.70 per litre (3.8 litres to a gallon – that’s almost $6.50 per gallon). And economists tell me with earnest looking faces, that inflation is low.
Earlier in the week the days were sunny and hot. Actually a few of the days reached 35’C / 95’F in the shade, and it sure felt hot to me. It wasn’t that long ago that the farm was held in the grip of winter. Still, changeability is the watchword here, and the weather forecast for Saturday promised a very good dose of rainfall. And the thick clouds delivered on that forecast.
Good rainfall during spring is the perfect weather to get seeds and seedlings into the soil. There was one minor problem – we hadn’t yet completed the new terrace fencing. If the new terrace was not well fenced, the local wildlife would consume every single seedling planted. And we had a few seedlings ready to go into the soil:
After many early mornings and late evenings, the fencing was installed around the new terrace. We even managed to plant out all of the seedlings and filled the rest of the soil with seeds. Just in time for the promised heavy rain!
A cubic metre (1.3 cubic yards) of composted woody mulch was also added to the garden beds adjacent to the new garden terrace project. A Black Locust tree is growing really well in one of the garden beds.
I recently had a decade old Lemon (Eureka variety) tree succumb to a pathogen which kills the tree through ‘Collar Rot’. The pathogen is wide spread down under, so I’ll have to be more careful in future, and not allow thick plantings to grow around the base of fruit trees. Not being the sort to be easily daunted, I just purchased another Lemon Eureka, but this time taking note as to the root-stocks reported hardiness to the pathogen. The opportunity also allowed me to select for a fruit tree that will grow much bigger than the previous lemon (6m / 20ft). I have persistent memories from when I was a child of climbing around and high into the canopy of my grandparents huge old lemon tree.
The strawberries are growing fast, and there are plans this week to place straw under the rapidly developing fruit. The straw protects the berries from coming into contact with the soil. Commercial berry farms use plastic to achieve the same result.
Despite this year being on the drier side of average, the orchards (shady and sunny orchards) are growing really well. I am of the opinion that the good feed they received in Autumn was a great success.
Even the garden beds around the house are growing really strongly.
Onto the flowers:
The temperature outside now at about 10.00am is 12’C (53’F). So far this year there has been 642.2mm (25.3 inches) which is the higher than last weeks total of 617.2mm (24.3 inches).