Monthly Archives: July 2009

The Arms Trade

Yesterday iconoclastic commentator on technology, politics and culture, Stilgherrian, shared an interesting discovery on twitter. He had come across the website of the Stockholm International Peace Research Institute (SIPRI) and their Arms Transfer Database. SIPRI has been monitoring international arms trades since 1968 and in the process have assembled an extraordinary database with details of all international transfers of major conventional weapons since 1950. Since March 2007 this database has been available online.

The business of international arms trading is certainly not within my area of expertise, but a rich data-set like this presents a perfect opportunity for a type of data visualization that has not yet appear on the blog: maps. The SIPRI database provides “Trend Indicator Value (TIV)” tables which aggregate trade values between countries. Values are inflation-adjusted, expressed in 1990 US dollars.

Starting with Australia, the data shows that the total value of arms imported by Australia from 1980 onwards exceed exports by a factor of almost 30 times. Imports are largely sourced from North America and Europe, while exports are spread more broadly and include a range of Asian and Pacific countries. Click on the charts to see larger images.

From Australia (Small 2)

Arms transfers from Australia (1980-2008)

To Australia  (Small 2)

Arms transfers to Australia (1980-2008)

Needless to say, the distribution of arms transfers in and out of the USA looks very different. Over the last 30 years, the USA has exported arms to well over 100 countries across every continent other than Antarctica.

From USA (Small 2)

Arms transfers from the USA (1980-2008)

To USA (Small 2)Arms transfers to the USA (1980-2008)

Another big exporter of arms to a wide range of countries is the United Kingdom.

From UK (Small 2)

Arms transfers from the UK (1980-2008)

To UK (Small 2)Arms transfers to the UK (1980-2008)

Russia offers a rather different distribution of arms transfers. Russia has exported arms to almost 100 counties, most notably China, but since 1980 has only imported from Germany, Poland and the Ukraine.


Arms transfers from Russia (1980-2008)

To Russia (Small 2)Arms transfers to Russia (1980-2008)

I will not offer any further comment on this data, but will leave the maps to speak for themselves. If you would like to see a map for any other countries, feel free to contact me on twitter, @seancarmody. I will add them to this flickr image set.

UPDATE: As Mark Lauer correctly pointed out, these maps were originally inaccurate when it came to countries which were formerly part of the Soviet Union. This has now been corrected in the maps above.

Love is Old-Fashioned, Sex Less So

Following on from my post on Visualizing the Hottest 100, I noticed that the UK’s Guardian newspaper has published a list of 1000 songs to hear before you die*. The list was assembled from nominations posted by readers. Even before looking at the list, I suspected that the demographic profile of the Guardian’s readers may be a little different to that of Triple J’s listeners. A look at the distribution of year of release in the two lists bears that out.

Hottest 100 Guardian 1000
Minimum 1965 1916
1st quartile 1984 1968
Median 1994 1977
3rd quartile 1997 1988
Maximum 2008 2008

Year of Release “Five Number” Statistics

In fact, fully 14% of the tracks in the Guardian’s list were released before the earliest track in the Hottest 100. Interestingly, that track was Bob Dylan’s “Like A Rolling Stone”, which also features in the Guardian’s list.

While the 1000 songs are not presented in any particular rank order, they are grouped by “theme”. The themes are heartbreak, life and death, love, party sonds, people and places, politics and protest and, of course, sex. This allows us to investigate the evolution over time of these different themes.

The chart below is a “box and whisker plot”, also known more prosaically as a “box plot”. It provides a graphical representation of the distribution over songs in each theme by year of release. The box shows the “interquartile range”, from the 1st quartile to the 3rd quartile. This means that half the songs fall inside the box, while a quarter were released in earlier years and a quarter in later years. The solid band shows the median year, which is the year right in the middle of the distribution. The light grey line shows the average year of release. Since most of the distributions are skewed to the left (early years) right (later years) in the interquartile range [see UPDATE below], the mean is a bit higher than the median. The “whiskers” on the plot extend no more than 1.5 times the width of the box. Any outliers beyond the whiskers are shown as points.

Box Plot (II)

Distribution of Year of Release

So what can be made of these distributions? It looks as though love songs are not as popular as they once were and people and places have fared worse still. But while love may be old-fashioned, sex and party songs have become more prevalent and there is still plenty of heartbreak.

And what of the most popular artists? The three most successful artists in Triple J’s Hottest 100 were Nirvana, Jeff Buckley and Radiohead. Nirvana and Radiohead managed one song each in the Guardian’s list: “Lithium” and “Paranoid Android” respectively (both in the life and death theme). Jeff did not make the list, although his father Tim did, with the song “On Top”. The artist with the most entries in the Guardian’s list was Bob Dylan, and the top 12 features a few who did not make it into the Hottest 100 at all, including Randy Newman, Frank Sinatra and The Kinks.

Bob Dylan 24
The Beatles 19
David Bowie 9
Randy Newman 8
The Rolling Stones 8
Elvis Presley 6
Frank Sinatra 6
Madonna 6
Marvin Gaye 6
Prince 6
The Beach Boys 6
The Kinks 6

It’s hard to read much more than that into these numbers, but importantly it gave me the opportunity to use a box and whisker plot which this blog has been sorely lacking.

UPDATE: As Mark has commented, this is a bit of a dodgy explanation. There is only so much that can be deduced about a distribution from a box and whisker plot (appealing though they may be). This histogram shows the distribution of the year of release for life and death songs.

Histogram: Life and Death Year of Release

Life and Death Theme Histogram

Mark also pointed out that the box and whisker plot does not really show the relative popularity of the different themes over time. I haven’t used pie charts yet, but I am not a fan, so I have come up with a mosaic plot instead.

Mosaic (II)

This confirms the decline in popularity of the love theme, but suggests that, while sex boomed in the 1990s, it has lost ground again in the 21st century. Heartbreak and party songs are the most popular themes of the current decade. The chart also shows that there are more songs in the list from the 60s and 70s than from the 90s, again a departure from the Hottest 100.

I have added this chart to the Guardian Datastore photo pool on flickr.

* To be precise, there are only 988 different songs in the list (and six are duplicated, each appearing in two different categories).

Deleveraging and Australian Property Prices

car-smallA few weeks ago, I had a preliminary look at Australian property prices. That post focused on rental yields and argued that the fact that property prices have consisently outpaced inflation over the last 10-15 years can be associated with a steady decline in rental yields which has been matched by a decline in real yields in other asset classes. What I did not address was the argument that debt deleveraging will lead to a collapse in property prices just as it has done in the US. That is the subject of today’s post.

The Bubble

The bubble argument is a compelling one. The chart below shows the growth in Sydney property prices over the last 24 years. Prices rose fairly consistently over this period at an annualised rate of almost 7%. Over this period, inflation averaged around 3% per annum, so property prices grew at a rate of approximately 4%. This means since 1985, the cost of a typical house has risen by a disconcerting 123% over and above inflation. Little wonder that many people see the property market as a bubble waiting to burst.


Sydney Property Prices (1985-2009)*

The fuel driving the property market has been the rapid growth in household debt, most of which has been in the form of mortgage debt.  The next chart is taken from Park the Debt Truck!, a post which looks at trends in Government and household debt in Australia. The highlighted regions show the periods of Labor federal governments. Household debt began its upward trajectory during the Hawke and Keating years, but really gathered pace during the Howard years. With the help of continually extended first-time home-buyer grants, growth is yet to slow now that Rudd has come to power.

Govt and Household Debt

Government and Household Debt in Australia

This expansion of debt has been a key factor driving up property prices. Without the easy access to money, the pool of potential home-buyers would be far smaller and with less demand pressure, prices would not have risen so fast. A very similar pattern was evident in the US, but in late 2006 the process began to lose steam. Property prices faltered, debt became harder to obtain, borrowers began to default on their loans leading to foreclosure sales which put further downward pressure on prices. The bubble was bursting.

So far I am in agreement with the property bubble school of thought. Where I part ways is concluding that Australia will inevitably experience the same fate, resuting in a collapse in property prices, possibly in the range of 30 to 40%.


Words can be powerful. Once you use the word “bubble” to describe price rises, it seems almost inevitable that the bubble must burst. Similarly, “reducing debt” sounds like a good thing, while “deleveraging” sounds like a far more ominous destructive process. But all deleveraging really means is debt reduction and it can happen in a number of ways:

  • borrowers use savings to gradually pay down debt
  • borrowers sell assets to pay down debt
  • borrowers default on their loan

When it comes to borrowers selling assets, in some cases this may be voluntary. But it may be that they are forced to sell. A good example is in the case of margin loans to purchase shares. If the share price falls, the lender will make “margin call”, requiring the borrower to repay some of the loan. Selling some or all of the shares may be the only way to raise the money required. When borrowers default on a secured loan (such as a mortgage), the lender will usually sell the asset securing the loan in an attempt to recover some of the money lent. In this situation the emphasis is usually on ensuring a speedy sale rather than maximising the sale price.

Forced sales are the ideal conditions for a price collapse, particularly if lenders have become reluctant to finance new borrowers. If debt reduction takes the form of gradual repayment, the pressure on prices is far less. There will certainly be less demand for assets than during a period of rapid debt increase, but this can simply result in neglible growth in asset prices for an extended period of time rather than a price collapse.

To understand what form debt reduction will take, it is not enough to consider the amount of debt. The form of the debt is very important. Some of the key characteristics that will influence the outcome include:

  • the term of the loan (the length of time before it must be repaid)
  • repayment triggers (such as margin calls)
  • interest rates

Short-term loans can be very dangerous. In 2007, the non-bank lender RAMS learned this the hard way. It had relied heavily on very short-term funding (known as “extendible asset-backed commercial”) and back when the global financial crisis was simply known as a liquidity crisis, RAMS found itself unable to refinance this debt. It’s business collapsed and it was purchased by Westpac for a fraction of the price at which the company had been listed only months before.

The most common type of loan with repayment trigger is a margin loan. There is no doubt that a significant factor in the dramatic falls in the Australian sharemarket over 2008 was forced selling by investors who had used margin loans to purchase their shares. There are also other sorts of loan features than can be problematic for borrowers. Another one of the corporate victims of the financial crisis was Allco Finance. It turned out that they had a “market capitalisation clause” attached to their bank debt. This was like a margin call on the value of their own company and was an important factor in the collapse of the company.

Even if borrowers have long-term loans and are not forced to repay early, if they are unable to meet interest payments, they will be in trouble. A common feature of the US “sub-prime” mortgages at the root of the financial crisis was that interest rates were initially low but then “stepped up” a couple of years after the mortgage was originated. While the market was strong, this was not a problem due to the popular practice of “flipping” the property: selling it for a higher price before the interest rate increased. Once prices began to fall, the step-ups became a problem and mortgage delinquencies (falling behind in payments) and defaults began to rise. In some states, the phenomenon was exacerbated by laws that allowed borrowers to simply walk away from their property, leaving it to the lender, who had no further recourse to pursue the borrower for losses. On top of all this, rapidly rising unemployment put further stress on borrowers’ ability to service their mortgages.

So, how do Australian mortgages look on these criteria? The standard Australian mortgage is a 25-30 year mortgage with no repayment triggers. Most mortgages are variable rate and, despite the banks not passing through all the central bank rate cuts, mortgage rates are at historically low levels. In part due to the regulatory framework of the Uniform Consumer Credit Code (UCCC), lending standards in Australia have been fairly conservative compared to the US and elsewhere. The Australian equivalent of the sub-prime mortgages, so-called “low doc” or “non-conforming” mortgages, represent a much smaller proportion of the market. Many lenders cap loan-to-value ratios (LVR) at 95% and require the borrower to pay mortgage insurance for LVRs over 80%, which encourages many borrowers to keep their loans below 80% of the value of the property. Interest step-ups are rare. Mortgages are all full recourse.

The result is that while US mortgage foreclosure and delinquency rates have accelerated rapidly, they have only drifted up slightly in Australia. It is not easy to obtain consistent, comparable statistics. For example, deliquency data may be reported in terms of payments that are 30 days or more past due, 60 days or more or 90 days or more. Of course, figures for 30 days or more will always be higher than 90 days or more. Nevertheless, the difference in trends is clear in the chart below which shows recent delinquency rates for a variety of Australian and US mortgages both prime and otherwise. The highest delinquency rates for Australia are for the CBA 30 days+ low doc mortgages. Even so, delinquencies are lower even than for US prime agency mortgages 60 days+ past due.

Delinquency Rates (III)Delinquency Rates in Australia and the US**

All of this means that the foreclosure rate remains far lower in Australia than in the US. Combined with the fact that mortgage finance is still increasing, due largely to the ongoing first-time home-buyers grant, there has still been little pressure on Australian property prices. In fact, reports from RP Data-Rismark suggest prices are on the rise once more (although I will give more credence to the data from the Australian Bureau of Statistics which is to be released in August).

Once the support of the first-time home-buyers grant is removed, I do expect the property market to weaken. Prices are even likely to fall once more with the resulting reduction in demand. However, without a sustained rise in mortgage default rates, I expect deleveraging to take the form of an extended lacklustre period for the property market. Turnover is likely to be low as home-owners are reluctant to crystallise losses, in many cases convincing themselves that their house is “really” worth more. Even investors may content themselves reducing the size of their debt, continuing to earn rent and claim tax deductions on their interest payments.

The biggest risk that I see to the Australian property market is a sharp increase in unemployment which could trigger an increase in mortgage defaults. To date, forecasters have continued to be confounded by the slow increases in unemployment and now the Reserve Bank is even showing signs of optimism for the Australian economy.

Australian property prices have certainly grown rapidly over recent years. Driven by rapid debt expansion, prices have probably risen too far too fast. But, calling it a bubble does not mean it will burst, nor does using the term “deleveraging” mean that prices will inevitably follow the same pattern as the US. In the early 1990s, Australia fell into recession and the commercial property market almost brought down one of our major banks. Meanwhile, house prices in the United Kingdom collapsed. Despite all of this, in Australia, residential prices simply slowed their growth for a number of years. I strongly suspect we will see the same thing happen over the next few years.

* Source: Stapledon

** Source: Westpac, CBA, Fannie Mae, Bloomberg.

By the way, notice anything unusual in the picture at the top?

UPDATE: Thanks to Damien and mobastik for drawing my attention to this paper by Glenn Stevens of the Reserve Bank of Australia. It includes a chart comparing delinquency data for the US, UK, Canada and Australia. The data is attributed to APRA, the Canadian Bankers’ Association, Council of Mortgage Lenders (UK) and the FDIC. Since these bodies do not appear to make the data readily available, I have pinched the data from the chart and uploaded it to Swivel. It paints a very similar picture to the chart above.

Delinquency: US, UK, Canada and AustraliaMortgage Delinquency Rates

Park the Debt Truck!

About two months ago, I tried to bring some perspective to concerns about growing government debt in Australia. Last week the opposition has rolled out the “debt truck” to add to the hysteria about growing government debt, so I feel compelled to return to the subject for another attempt.

Last time I looked at net debt data going back to 1970. The data came from a chart in the Treasury paper “A history of public debt in Australia”. The paper also shows a history of gross debt and although I prefer to use net debt, the gross debt data goes back further, all the way to 1911 and so gives a longer historical perspective. As usual, I have posted the data on Swivel.

The alarmists like to trade in dollar figures, pointing to forecasts that gross government debt will peak in 2014 at $315 billion, which will be an all-time record. Of course, that ignores the effects of inflation, so it makes far more sense to look at the debt as a percentage of gross domestic product (GDP). Expressed this way, the 2014 forecast amounts to an expected 21% of GDP (while net debt will be 14%).  As is evident in the charts below, this is about the same as in the years following the recession of the early 1990s and it is nowhere near levels in the more distant past. Immediately after World War II, gross debt reached an enormous 125% of GDP.

History of Government Debt

Figure 1 – Australian Government Debt (1911-2008)

If you are wondering about the shaded bands in these charts, they indicate periods of Labor Governments. The opposition is fond of saying that debt falls under Coalition governments and rises under Labor governments. Looking at the data, it is certainly true that government debt fell through both the Menzies and the Howard years (a pairing that would, I am sure, warm the cockles of our previous prime minister’s heart). Beyond that, the link is not so clear cut. What seems more apparent is that government debt fell during good economic times and rose during bad economic times and, moreover, the Coalition have not had a monopoly on good economic times nor Labor on bad. This pattern should not be the least bit surprising. When the economy booms, tax receipts rise and unemployment falls, reducing the cost of welfare payments and when it falters, the opposite occurs. As a result, the government tends to run fiscal surpluses in the good times, paying down their debt, and deficits in the bad times, increasing debt once more.

Recent History of Government DebtFigure 2 – Australian Government Debt (1960-2008)

What the debt demonisers fail to realise is that this counter-cyclical pattern of government spending is a good thing. The increase in welfare spending in troubled economic times helps boost economic activity, softening the impact of a slowdown, which is why welfare spending is often referred to as an “automatic stabiliser”. In more extreme downturns, such as the one we currently face, the government can supplement the automatic stabilisers with additional stimulus spending.

More importantly, government debt is very different from personal or business debt and is not something to be afraid of. In Australia, we have a currency that is not tied to other currencies, nor to gold or any other commodities. It is “fiat money”, effectively under the control of the government. Furthermore, all of the government’s debt is denominated in Australian dollars. This means that the government can, in fact, never run out of money, unlike individuals or businesses. So, any comparison between government debt and household debt is meaningless. Of course, in practice, governments should control their spending. If they kept increasing spending when the economy was strengthening, there would come a point where this spending would become inflationary. But this is a very different kind of constraint than I face on my spending! To dig deeper into the implications of fiat currency, monetary theory Bill Mitchell has a lot of material on the subject on his blog. A good place to start is his post on gold standard myths.

So, there is no substance to the fear that the opposition is trying to excite with their debt truck. Government debt is not what we should be worrying about. What is more concerning is private debt. Since individuals cannot issue new currency to repay their loans, excessive household debt can be a real concern. And, the chart below shows that there is something to be worried about. While the Coalition may be very proud of the record of government debt reduction during the Howard years, they should not be so happy about what happened to household debt under their watch (and you thought I was being easy on Howard before!). Instead of focusing on the possibility that government debt may reach 14% of GDP by 2014, perhaps the opposition’s debt truck should drive around the country alerting everyone to the fact that household debt is already over 100% of GDP.

Govt and Household Debt

Figure 3 – Household and Government Debt (1976-2008)

Of course, there are some commentators, such as Steve Keen, who are rightly concerned about the excessive levels of household debt. It is very likely that Australia and many other developed countries around the world will experience an extended period of private sector “deleveraging” (debt reduction). As long as consumers are saving rather than spending, this will translate to far lower economic growth than we have been used to in recent years.

To this point, I agree with Keen. Where I disagree is the extent to which this deleveraging will result in massive declines in Australian property prices. But that is a topic for another post, the long awaited sequel to my recent post on property prices.

UPDATE: for a Nobel Prize-winning perspective, here is Paul Krugman arguing that government deficits saved the world.

Visualizing the Hottest 100

Today radio station Triple J finished broadcasting their Hottest 100 tracks of all time, the first all-time vote since 1998. For those outside Australia and not familiar with the tradition of the Hottest 100, it began back in 1989 and results are determined by listener votes. After two more years the format changed and votes were restricted to tracks released over the previous year, presumably because the top 10 became a list of the usual suspects. Since then 1998 and this year have been the only all-time hottest votes. A traditional favourite, Love Will Tear Us Apart by Joy Division, which was #1 in two of the first three all-time charts only made it to #4 this year, but Nirvana’s Smells Like Teen Spirit was #1 in the third and again in 1989 1998 and this year it made it to #1 for a third time.

Thanks to the wonderful collaborative spirit of Web 2.0, this year’s full list is already up on Wikipedia, complete with the year of release of each track. This allows me to indulge in my data mining hobby, which is why I am posting here rather than over on the The Music Blogs. So, inspired by a suggestion from Mark Lauer, a regular Mule reader (and careful sub-editor), here is a look at the distribution of the hottest 100 tracks by year of release.


Hottest 100 Track Ranking by Year of Release

While the density certainly increases after about 1995, reflecting a lot of new entrants since the early charts, there is no clear trend along the 45 degree line (and, for the technically-minded, the R2 is about 0.1%). So, while there are not as many oldies in the chart, those oldies that do make it in are just as likely to rank well as the newer entrants. To make the most of the R code I wrote to produce this chart, here is the same thing showing artist name rather than track name.


Hottest 100 Artist Ranking by Year of Release

To get a better sense of the distribution of rank and year, here is a chart that just shows the location of the tracks by year and rank.


Hottest 100 Rank versus Year of Release

Seeing the data just as points like this shows a concentration of tracks released around the mid-90s. A histogram of the year of release confirms this.


Of course, I’m sure this says more about the demographics of voters than the preponderance of true classics in the 90s.

UPDATE: In this tweet, @nicwalmsley suggested an artist scoring system: 100 points for ranking 1st, 1 point for ranking 100th. As he notes, this system puts Radiohead, Jeff Buckley and Nirvana in 1st, 2nd and 3rd place respectively. Here are the top 10 artists by this measure.

Radiohead 343
Jeff Buckley 269
Nirvana 188
Powderfinger 154
Metallica 152
The Beatles 149
The Smashing Pumpkins 139
Pearl Jam 138
Michael Jackson 135
Pink Floyd 13

FURTHER UPDATE: @Warlach has laboured hard to assemble the full Hottest 100 as a playlist.

YET ANOTHER UPDATE: In case you are wondering about the geographic mix, as expected the list is dominated by the US and the UK.

USA 45
UK 37
Australia 15
France 2
Jamaica 1

The pedants should note that I’ve counted System of a Down in the USA (rather than USA/Armenia) and Crowded House as Australia (rather than Australia/New Zealand). I hope that doesn’t offend our Kiwi cousins!

No Alternative View of Dubai

Back in April, I announced that the Mule was to be graced with a guest post providing an alternative, more positive picture of Dubai than the one painted by The Independent. Sad to say, although written, the piece is not going to see the light of day. My guest poster’s employer has ruled out any scope for publishing the piece, even if it is done anonymously.This experience suggests to me that on the score of openness at least, Dubai does not do well!

I was excited at the prospect of the occasional different voice here on the Mule, so if anyone has something they are itching to share with the world, let me know. There could be a guest spot for someone here yet!