Pandora’s Box Is Open And The Dead Cat Is Alive Because It Bounced…

Ok, most of you have probably heard of a dead cat bounce and a fair number of you have heard about Schrodinger’s Cat. As for Pandora’s box, I understand that Chris Nolan was planning to do a film version but it’s been shelved owing to his concern that it may open a lot of problems for him unless he gets it one hundred percent historically accurate. Still, he’s holding on to hope that he can get the rights to the original…

I”m going to start with the obvious and move to an explanation of pretty much all of the above… Perhaps not a satisfactory one, but an explanation, nonetheless.

I’m going to start with the housing market. If you’ve read any media in the past couple of years you’d have thought that there was some sort of boom in housing and that a crash was inevitable because these sort of prices couldn’t be sustained. First home buyers were locked out of the market and somebody needed to do something. However, if you’ve read the media in the past couple of months, you’d understand that any movement in the opposite direction is the end of civilization as we know it. Investors are fleeing the auctions and first home buyers are pausing, waiting for a price they can actually afford. And yes, while a few first home buyers are getting into their first home and living there, they may be victims of negative equity which means that they couldn’t sell for more than they paid, so they’ll be stuck living there and not able to make a profit by selling and moving into the local bus shelter.

Of course, one also needs to consider all the other homeowners whose houses are now worth less than they were a few months ago and – if they knew how much they’d lost by the recent changes – they’d be terribly upset. These are sort of like the proverbial Schrondinger’s Cat: a thought expirement where a cat was theoretically placed in a box with a vial of poison. If the poison was released the cat would be dead but if not, the cat was still alive. Thus, for the purpose of the exercise, the cat could be considered both alive and dead. Similarly, the people not checking how much their home is worth, don’t know whether they’re richer or poorer and like the cat and simply stuck in a box where they must live until some real estate agent opens the box and makes them an offer.

I also saw a rather confusing thing in a social media post about a woman being the first victim of the “widow’s tax”. The poster was Noel Whitaker, who writes financial advice in various media outlets. He talked about how a woman inherited a negatively geared property in a recent divorce settlement but, under the current rules, it was no longer eligible for negative gearing. He went on to say how this was going to hurt people “one widow at a time”. Generally speaking, I would have thought that most widows don’t need to divorce their dead partner but whatever… It had a number of other things that confused me. For example, it was stated that the bank wouldn’t refinance her, which would be more to do with her income than the recent changes. And surely, given how cripplling the CGT changes are meant to be in the future, the best thing for her would be to sell before they kick in… And before the market drops even further because, well, isn’t it meant to be crashing. I mean, someone starting primary school wouldn’t have been alive the last time the market dropped this much!

The housing market isn’t the only place where things are a little confusing. We also have the fuel excise. Economists argued that the rise in fuel prices stemming from the Iran was was likely to send inflation higher due to increased transport costs, but the reduction in excise was liable to send inflation higher due to increased demand in the community. Unlike the cat who was both alive and dead, the fuel excise is inflationary whether it stays the same, is reduced or increased. If Schrodinger were still alive he might have found a name for such a phenomena… say something like Schrodinger’s dragon which is a dangerous beast that needs to kept in captivity but even if one does, it won’t make a difference because we all know that it might get out because at least one economist can see a way that it will, while others argue that it’s impossible to keep in a box because not only will it burn its way out, it’s mythical and therefore impossible to capture.

Then, of course, we have the problem of balancing the federal budget. This is a particularly difficult thing to do because in order to do it, a Treasurer must reach a point where revenue equals expenditure. In theory this should be easy, but it’s made difficult by the extra rules imposed:

1. One should aim for a balanced budget.
2. One should not change the tax system unless it’s to reduce the total amount of tax paid.
3. One should be cutting what one spends.
4. One should be fixing things like hospital waiting lists or the potholes in the road.
5. One should be cutting the jobs of people who might be fixing things or organising to get them fixed.

As you can see, this is quite the juggling act.

We are now less than one month away from Spring auctions, where the Capital Gains tax thing will be deemed a failure because prices have stopped falling and not enough first home buyers are in homes.