Sure but the "money" from future payments or "promises" doesn't actually exist yet does it?
In the fractional reserve lending system, when a bank lends out 90-95% of it's deposits and the borrower places that money in another bank's account, that bank and subsequent debtors can then lend the money again and again and again, thereby opening up the financial system to potential greed and collapse. It almost happened 10 years ago.
I know some people like to frame this in terms of something sinister or nefarious but in reality it's just a promise that goes terribly wrong when people get greedy.
Banks make money from nothing but a promise of a future IOU that doesn't exist in today's money market.
By freeing up capital for other investments, it does work in the current system to promote general economic growth but the question is, is it ethical and is it leading to a sustainable economy where runaway inflation and speculation in markets like housing are the side effect?
Select to expand quotejuicyfruit said..
Sure but the "money" from future payments or "promises" doesn't actually exist yet does it?
In the fractional reserve lending system, when a bank lends out 90-95% of it's deposits and the borrower places that money in another bank's account, that bank and subsequent debtors can then lend the money again and again and again, thereby opening up the financial system to potential greed and collapse. It almost happened 10 years ago.
I know some people like to frame this in terms of something sinister or nefarious but in reality it's just a promise that goes terribly wrong when people get greedy.
Banks make money from nothing but a promise of a future IOU that doesn't exist in today's money market.
By freeing up capital for other investments, it does work in the current system to promote general economic growth but the question is, is it ethical and is it leading to a sustainable economy where runaway inflation and speculation in markets like housing are the side effect?
Exactly- do you want to blame the facilitator of the debt or those that take on that debt for ultimately unproductive purposes?
Blaming the banks is a red herring. Blame the various central banks for making debt so cheap it's hard to resist and then blame human greed for wasting that cheap debt on get rich quick schemes.
Did anyone watch Insight on Hong Kong tonight?
7.5 million people crammed in to a city with the area of Hobart.
Two million Australian dollars for an apartment that was tiny times two.
The scale of poverty there is huge. Some districts there remind me of Detroit.
Lots of property owned by Chinese investors possibly adding to the problem of super cramped dwellings.
I would save up and go for a holiday to Australia and become a illegal 
Select to expand quoteBara said..juicyfruit said..
Sure but the "money" from future payments or "promises" doesn't actually exist yet does it?
In the fractional reserve lending system, when a bank lends out 90-95% of it's deposits and the borrower places that money in another bank's account, that bank and subsequent debtors can then lend the money again and again and again, thereby opening up the financial system to potential greed and collapse. It almost happened 10 years ago.
I know some people like to frame this in terms of something sinister or nefarious but in reality it's just a promise that goes terribly wrong when people get greedy.
Banks make money from nothing but a promise of a future IOU that doesn't exist in today's money market.
By freeing up capital for other investments, it does work in the current system to promote general economic growth but the question is, is it ethical and is it leading to a sustainable economy where runaway inflation and speculation in markets like housing are the side effect?
Exactly- do you want to blame the facilitator of the debt or those that take on that debt for ultimately unproductive purposes?
Blaming the banks is a red herring. Blame the various central banks for making debt so cheap it's hard to resist and then blame human greed for wasting that cheap debt on get rich quick schemes.
Oh all parties are to blame to a degree - including banks, but the "facilitator" as you call it, is still essentially making money for almost nothing by using "money" "created" and lent out by third or fourth or fifth parties. The stability of the system relies on continuous economic growth and new borrowers and deposits. The more indebted the money market becomes, the more susceptible it is to any shock.
Outside this little scam, this is otherwise called theft or loosely, a form of Ponzi scheme. If debts are called, the system would collapse.
Most house prices at moment are rediculous and somebody's printing and getting money
Let's get serious for a minute... or 3
www.facebook.com/Neel.Kolhatkar94/videos/331438480955914/
time to stir this topic up again :)
What's the mood? Think Scomo is going to be able to revive a falling market?
I think Scomo will throw the kitchen sink at it. You may say he already started with their election promise of guaranteed deposit to let first home buyers borrow 95%. Now Labor are out of the way they will probably even encourage the banks to go back to looser lending. Don't need to worry about that pesky royal commission any more.
Saw this 7news item passed around on twitter (hope the linky works):
twitter.com/7NewsMelbourne/status/1130386256729260038
I lived in Ireland 2009-2010. The scenes there showing lots of empty land and a half built estate look pretty much identical to the stuff I saw all the time on TV in Ireland. "Ghost estates". Totally sad for the people that live in them... in negative equity, surrounded by half finished houses that will not be completed (developer will probably go bust or just f off).
This 7news story is heart breaking for the people affected. The people that walk away burning the deposit only will be the lucky ones.
I think the crash in realestate from the GFC was a lot bigger than a downturn in property values in Melbourne. Hopefully it doesn't get too bad.
In that story they were saying that the bank revalued the block from $400k to $350k, which is still reasonable. In Ireland I think they had the problem that lots of people walked away, developers couldn't sell a lot of houses, and the people that stayed couldn't cope with the damage from looters in the estates.
i think SloMo will have no effect on the housing market. It was going down before the election and will no doubt keep going until it hits a fair value. If Labor had won it would have been their fault, but they didn't so its no one's fault.
Select to expand quotennnbrewery said..
time to stir this topic up again :)
What's the mood? Think Scomo is going to be able to revive a falling market?
I think Scomo will throw the kitchen sink at it. You may say he already started with their election promise of guaranteed deposit to let first home buyers borrow 95%. Now Labor are out of the way they will probably even encourage the banks to go back to looser lending. Don't need to worry about that pesky royal commission any more.
Saw this 7news item passed around on twitter (hope the linky works):
twitter.com/7NewsMelbourne/status/1130386256729260038
I lived in Ireland 2009-2010. The scenes there showing lots of empty land and a half built estate look pretty much identical to the stuff I saw all the time on TV in Ireland. "Ghost estates". Totally sad for the people that live in them... in negative equity, surrounded by half finished houses that will not be completed (developer will probably go bust or just f off).
This 7news story is heart breaking for the people affected. The people that walk away burning the deposit only will be the lucky ones.
Credit creation lubricates the wheels of the economy ... it is necessary.
but when it is allowed for speculation and generation of economic rent on government granted licenses (property being the most lucrative of them all) and the gains to be capitalised then traded you get boom and busts which eventually are realised on the stock market. This is caused by the eventual contraction of credit as banks have forced to improve their balance sheets.
It is pretty simple really.
Dont panic. This is just the mid cycle correction playing out.
The most lucrative part of the cycle is yet to happen. That's when things really get wild.
Although this has only happened ONLY every cycle since 1800 (and before but figures were collected more after then).
SO take a deep breath. Watch the next two years and governments and banks start to take the gloves off the avoid a "recession ". Homeowners grant is a perfect example. This will only capitalise back into the price of property. They really have no clue what they aren't doing or what is really going on. If they did we wouldn't have had the same cycle play out over and over again.
Long way to go yet lads.
Select to expand quoteFormulaNova said..
I think the crash in realestate from the GFC was a lot bigger than a downturn in property values in Melbourne. Hopefully it doesn't get too bad.
In that story they were saying that the bank revalued the block from $400k to $350k, which is still reasonable. In Ireland I think they had the problem that lots of people walked away, developers couldn't sell a lot of houses, and the people that stayed couldn't cope with the damage from looters in the estates.
i think SloMo will have no effect on the housing market. It was going down before the election and will no doubt keep going until it hits a fair value. If Labor had won it would have been their fault, but they didn't so its no one's fault.
the biggest negative from the election for me is that negative gearing wont ever get touched again. It was the one sensible policy labor had. We will continue to be a land of residential property speculators until it breaks us.
spoke to a developer flogging townhouses yesterday who pitched that libs back was a plus for his townhouses as we now have certainty. maybe. but 1 month ago he was saying i needed one of his townhouses to get the grandfathered neg gearing b4 1 jan 2020. I can buy one for 125k below independent valuation apparently.
access to credit remains the big issue and expect APRA to be told to do something there. thats partly why the banks are rallying - expectations of open for business again god help us. (that and franking credits of course)
Select to expand quoteeppo said..nnnbrewery said..
time to stir this topic up again :)
What's the mood? Think Scomo is going to be able to revive a falling market?
I think Scomo will throw the kitchen sink at it. You may say he already started with their election promise of guaranteed deposit to let first home buyers borrow 95%. Now Labor are out of the way they will probably even encourage the banks to go back to looser lending. Don't need to worry about that pesky royal commission any more.
Saw this 7news item passed around on twitter (hope the linky works):
twitter.com/7NewsMelbourne/status/1130386256729260038
I lived in Ireland 2009-2010. The scenes there showing lots of empty land and a half built estate look pretty much identical to the stuff I saw all the time on TV in Ireland. "Ghost estates". Totally sad for the people that live in them... in negative equity, surrounded by half finished houses that will not be completed (developer will probably go bust or just f off).
This 7news story is heart breaking for the people affected. The people that walk away burning the deposit only will be the lucky ones.
Credit creation lubricates the wheels of the economy ... it is necessary.
but when it is allowed for speculation and generation of economic rent on government granted licenses (property being the most lucrative of them all) and the gains to be capitalised then traded you get boom and busts which eventually are realised on the stock market. This is caused by the eventual contraction of credit as banks have forced to improve their balance sheets.
It is pretty simple really.
Dont panic. This is just the mid cycle correction playing out.
The most lucrative part of the cycle is yet to happen. That's when things really get wild.
Although this has only happened ONLY every cycle since 1800 (and before but figures were collected more after then).
SO take a deep breath. Watch the next two years and governments and banks start to take the gloves off the avoid a "recession ". Homeowners grant is a perfect example. This will only capitalise back into the price of property. They really have no clue what they aren't doing or what is really going on. If they did we wouldn't have had the same cycle play out over and over again.
Long way to go yet lads.
yeah nah - i like to drive looking through my windscreen not the rear view mirror. You make some good points but you are naive to think it will play out just like the last times.
This time is different.
The GFC and the massive recapitalisation of debt onto the public sector made sure of that. We have never seen negative real interest rates at this stage of the cycle before with this much indebtedness.
You are right that we will see an escalation of pump priming but I will play it via something liquid like the banks so i can get out quick!
Perth has been in a long slow correction for the last two years. I estimate around 20 - 30% drop since 2016. Property prices were overvalued in 2016 again after rises from after the previous mining boom property boom and subsequent correction of 2007.
Over the last two years everyone said we are now at the bottom, but it still slowly churned downwards. I think we must be getting close, otherwise there is a lot of negative equity.
It was so much better having a short drop of 20% over a month rather than 2 years of it. Sydney and Melb have only been correcting for less than a year now.
Select to expand quoteHarrow said..
The banks aren't 'making money', they are simply charging a commission for being an intermediary for a lot of loans, which means they are getting a % income from loans that use other people's money, not money that they've 'invented'. There's nothing magic or mystical going on.
Please raise your seats to the upright position, and fasten your seatbelts.
Australia does not have a fractional reserve banking system, as such. Since 1988 banks here use 1% of "non-recallable deposits".
In effect this means they can loan on the sum of deposits and capital, that is both cash and the homes on their books. So in that respect it is actually far, far worse than how they do it elsewhere, like the U.S., however it is far more highly regulated (whatever that means).
Our banks create money out of thin air. 99% of the money they lend out. Most money in the system is created by the housing market as housing loans. The banks just create that money out of thin air, lend it to the customer, who then gives it to someone else. A full 99% of it does not come from deposits, or capital.
en.wikipedia.org/wiki/Reserve_requirement
It is surprising the percentage of people that are not aware of this. It is well hidden by being very boring.
I'd be interested to see what people think of this, now that they know where most money comes from; banks just create it out of thin air. Note that reserve bank's loan rate, and the tax system, are levers that control the amount of money in circulation. The reserve bank also invents money out of thin air, and is not the government.
Money doesn't grow on trees. It is created out of thin air. It's just pieces of paper that represent it, or 1s and 0s these days.
...I'll add that the system has obviously worked so far.
Select to expand quotePoida said..
Perth has been in a long slow correction for the last two years. I estimate around 20 - 30% drop since 2016.
Why estimate? reiwa.com.au/the-wa-market/perth-metro/
10% perhaps?
Select to expand quoteeppo said..
Credit creation lubricates the wheels of the economy ... it is necessary.
but when it is allowed for speculation and generation of economic rent on government granted licenses (property being the most lucrative of them all) and the gains to be capitalised then traded you get boom and busts which eventually are realised on the stock market. This is caused by the eventual contraction of credit as banks have forced to improve their balance sheets.
It is pretty simple really.
Dont panic. This is just the mid cycle correction playing out.
The most lucrative part of the cycle is yet to happen. That's when things really get wild.
Although this has only happened ONLY every cycle since 1800 (and before but figures were collected more after then).
SO take a deep breath. Watch the next two years and governments and banks start to take the gloves off the avoid a "recession ". Homeowners grant is a perfect example. This will only capitalise back into the price of property. They really have no clue what they aren't doing or what is really going on. If they did we wouldn't have had the same cycle play out over and over again.
Long way to go yet lads.
If you believe this is the "mid cycle correction"... then when was the last begin/end of cycle correction? We didn't have it in Australia at the GFC.
I am not so sure government efforts to take the gloves off will work. But I suppose if Scomo wants to deliver his surplus the only way we will avoid a recession is if it does.
Select to expand quoteBara said..
access to credit remains the big issue and expect APRA to be told to do something there. thats partly why the banks are rallying - expectations of open for business again god help us. (that and franking credits of course)
Seek and ye shall find
www.smh.com.au/business/banking-and-finance/apra-moves-to-scrap-7-percent-mortgage-rate-floor-20190521-p51pht.html
Select to expand quoteMr Milk said..Bara said..
access to credit remains the big issue and expect APRA to be told to do something there. thats partly why the banks are rallying - expectations of open for business again god help us. (that and franking credits of course)
Seek and ye shall find
www.smh.com.au/business/banking-and-finance/apra-moves-to-scrap-7-percent-mortgage-rate-floor-20190521-p51pht.html
haha yeah that was quick eh! Looks like if you want to load up on debt and catch that falling knife APRA is gonna help you.
Select to expand quoteMr Milk said..
Seek and ye shall find
www.smh.com.au/business/banking-and-finance/apra-moves-to-scrap-7-percent-mortgage-rate-floor-20190521-p51pht.html
Oh great, get rid of the 2% safety gap, because everyone knows interest rates couldn't possibly go up over the 30 year life of your loan. Right?
Select to expand quoteHarrow said..Mr Milk said..
Seek and ye shall find
www.smh.com.au/business/banking-and-finance/apra-moves-to-scrap-7-percent-mortgage-rate-floor-20190521-p51pht.html
Oh great, get rid of the 2% safety gap, because everyone knows interest rates couldn't possibly go up over the 30 year life of your loan. Right?
They are removing the 7% "floor". There will still be a 2.5% "buffer" (or "safety gap"). This will loosen things a little, but maybe not as much as you think.
Right now, banks are actually assessing people's expenses properly instead of using some ultra low poverty expense index (you know... actually doing "responsible lending"). I have heard banks are examining months of bank and credit card statements and questioning individual line items to verify your ability to pay back ("what did you spend this $1000 on here?"). This is probably a major factor in slowing down, and reducing loan approvals. I guess keep on eye on whether there is pressure placed to "approve loans quicker" or some other euphemism for relaxing this.
In other news, a rate cut is coming (was already penciled in before the election I guess): www.abc.net.au/news/2019-05-21/reserve-bank-poised-to-cut-interest-rates-in-june/11134160
Select to expand quotennnbrewery said..Harrow said..Mr Milk said..
Seek and ye shall find
www.smh.com.au/business/banking-and-finance/apra-moves-to-scrap-7-percent-mortgage-rate-floor-20190521-p51pht.html
Oh great, get rid of the 2% safety gap, because everyone knows interest rates couldn't possibly go up over the 30 year life of your loan. Right?
They are removing the 7% "floor". There will still be a 2.5% "buffer" (or "safety gap"). This will loosen things a little, but maybe not as much as you think.
Right now, banks are actually assessing people's expenses properly instead of using some ultra low poverty expense index (you know... actually doing "responsible lending"). I have heard banks are examining months of bank and credit card statements and questioning individual line items to verify your ability to pay back ("what did you spend this $1000 on here?"). This is probably a major factor in slowing down, and reducing loan approvals. I guess keep on eye on whether there is pressure placed to "approve loans quicker" or some other euphemism for relaxing this.
In other news, a rate cut is coming (was already penciled in before the election I guess): www.abc.net.au/news/2019-05-21/reserve-bank-poised-to-cut-interest-rates-in-june/11134160
responsible lending bahaaha - should be responsible borrowing actually as thats the only real safety net.
A rate cut without the loosening of credit via APRA will do little more than hit the AUD for a bit. You are right no doubt some quiet words will be had to ease the assessment process as well. Its a shame they wont wait to let that take some effect before the cuts come but it seems they are in a rush for whatever reason.
Roll forward 12 months and we will be at 0.75% official cash rate, property will be down another 10% or more who knows, our debt will have ticked up over 200% of income to lead the world and the AUD will be sub 0.65 USD meaning less than half of the cash rate cut will have been passed on anyway.
Next? zero rates? negative nominal rates?
Something about Einsteins definition of insanity or something....
Select to expand quotebene313 said..Poida said..
Perth has been in a long slow correction for the last two years. I estimate around 20 - 30% drop since 2016.
Why estimate? reiwa.com.au/the-wa-market/perth-metro/
10% perhaps?
when you look at new land sale prices and then houses in the $1m - $3M range.
A land subdivision site (40 lots) for residential housing land was $5M 2 years ago, now would be lucky to $4M, ie 20%
A house in an outer residential area a friend bought for $570K 2 years ago he now cant sell for $460K. 20%
Tonight I watched Property Ladder from the UK.
A couple did up a property really well in Newport Wales ( 2009) Two real estate agents came in to value the property and both mentioned house prices in the area had plummeted by 50 percent in the last year.
Many people have been conditioned to think property values only head in one direction.
Tell them a correction of 50-80 percent is possible,even likely and it's like informing them the world is not round,lol.
Select to expand quotepetermac33 said..
Many people have been conditioned to think property values only head in one direction.
So long as there are more and more people, buying more and more things, we'll need more and more houses, there'll be inflation, and so on, and property prices will continue to go up, just like they have since well before you can remember. Society is a pyramid scheme.
You can't possibly say that on a long enough time line property prices go down.
Select to expand quotennnbrewery said..eppo said..
Credit creation lubricates the wheels of the economy ... it is necessary.
but when it is allowed for speculation and generation of economic rent on government granted licenses (property being the most lucrative of them all) and the gains to be capitalised then traded you get boom and busts which eventually are realised on the stock market. This is caused by the eventual contraction of credit as banks have forced to improve their balance sheets.
It is pretty simple really.
Dont panic. This is just the mid cycle correction playing out.
The most lucrative part of the cycle is yet to happen. That's when things really get wild.
Although this has only happened ONLY every cycle since 1800 (and before but figures were collected more after then).
SO take a deep breath. Watch the next two years and governments and banks start to take the gloves off the avoid a "recession ". Homeowners grant is a perfect example. This will only capitalise back into the price of property. They really have no clue what they aren't doing or what is really going on. If they did we wouldn't have had the same cycle play out over and over again.
Long way to go yet lads.
If you believe this is the "mid cycle correction"... then when was the last begin/end of cycle correction? We didn't have it in Australia at the GFC.
I am not so sure government efforts to take the gloves off will work. But I suppose if Scomo wants to deliver his surplus the only way we will avoid a recession is if it does.
Bottom was 2011 roughly 4 years after the GFC. We still had a property correction but this buffeted by the commodity boom and the fact that China created 28 trillion in debt in that time to finance their expanding economy. Local factors are always at play within the overall cycle.
Banks create credit which essentially means they create their own deposits. Have done for 200 odd years. This is not a new thing.
The biggest lender of this credit is the government (used to be kings and queens to finance war efforts... Rothschild lent to both the British and French ffs through the Napoleon war era).
They call these securities (interesting term) as it was essentially backed by the productive capacity of a country as monarchy's now modern governments can tax the living Fck out of their subjects to pay off this debt. (The only time a war debt was ever paid off completely was in 1886/1887 in America by the way).
Now this is all well well and good if the credit (through debt) is essentially backed only by the future productive wealth of a nation. Credit in that respect is a useful and good thing.
But when it is allowed to be used to speculate on government granted licenses (of which the property mortgage is the mother load of all license), when the non productive gains (the rent) is allowed to be capitalised into a price then traded like a commodity... then simply boom and bust.
Eventually the Price reaches a point that the actual productive economy can not afford. The value of the mortgage drops below the credit created (the banks deposit) in the first place. This then bleeds into all other industries (including the ones that actually make stuff) as bank credit starts to contract... as their deposit base contracts.
Of course credit is now created through central banks lending money to governments through bonds etc and these themselves are leveraged and this leveraging through derivatives have their only markets themselves. This exacerbated the problem even further.
If you read enoug history through this lens you will see each cycle has never been the same. The players slightly change, the economy setup changes, the type of government changes, the banking regulation and how they slightly operate chanages, some deflationary situations, some inflationary, floated dollar, controlled centralised pricing of the dollar ... you name it.
But the end result ultimately is always the same. And it's surprisingly regular...
this is because at the core of the problem (which has never changed ) is allowing government granted licenses (which are not a productive part of the economy) to be traded as a commodity. Speculation happens and valuable credit is used to chase the rent (free money). It is NOT put into productive partner of the economy. Well it is but too much is used to trade ...
this is hasn't changed hence we will get the boom and bust.
So lift your eyes out of the forest and see the whole picture. Don't get lost in the current economic situation and structures and think you can extrapolate from there. And ffs stop listening to the media and throw most most of your smarty pants economic knowledge in the bin. If it is so good, written by so called experts then why do they never see the bust coming (they never have) and why can the not explain it after?
They dont see the core root root of the problem. They have lumped land into the capital bracket and all their models can't see it coming. Then they pull out the black swan Bs.
And these so allied experts have got it wrong over and over and over again. Well into past lifetimes.
Select to expand quoteeppo said..nnnbrewery said..eppo said..
Credit creation lubricates the wheels of the economy ... it is necessary.
but when it is allowed for speculation and generation of economic rent on government granted licenses (property being the most lucrative of them all) and the gains to be capitalised then traded you get boom and busts which eventually are realised on the stock market. This is caused by the eventual contraction of credit as banks have forced to improve their balance sheets.
It is pretty simple really.
Dont panic. This is just the mid cycle correction playing out.
The most lucrative part of the cycle is yet to happen. That's when things really get wild.
Although this has only happened ONLY every cycle since 1800 (and before but figures were collected more after then).
SO take a deep breath. Watch the next two years and governments and banks start to take the gloves off the avoid a "recession ". Homeowners grant is a perfect example. This will only capitalise back into the price of property. They really have no clue what they aren't doing or what is really going on. If they did we wouldn't have had the same cycle play out over and over again.
Long way to go yet lads.
If you believe this is the "mid cycle correction"... then when was the last begin/end of cycle correction? We didn't have it in Australia at the GFC.
I am not so sure government efforts to take the gloves off will work. But I suppose if Scomo wants to deliver his surplus the only way we will avoid a recession is if it does.
Bottom was 2011 roughly 4 years after the GFC. We still had a property correction but this buffeted by the commodity boom and the fact that China created 28 trillion in debt in that time to finance their expanding economy. Local factors are always at play within the overall cycle.
Banks create credit which essentially means they create their own deposits. Have done for 200 odd years. This is not a new thing.
The biggest lender of this credit is the government (used to be kings and queens to finance war efforts... Rothschild lent to both the British and French ffs through the Napoleon war era).
They call these securities (interesting term) as it was essentially backed by the productive capacity of a country as monarchy's now modern governments can tax the living Fck out of their subjects to pay off this debt. (The only time a war debt was ever paid off completely was in 1886/1887 in America by the way).
Now this is all well well and good if the credit (through debt) is essentially backed only by the future productive wealth of a nation. Credit in that respect is a useful and good thing.
But when it is allowed to be used to speculate on government granted licenses (of which the property mortgage is the mother load of all license), when the non productive gains (the rent) is allowed to be capitalised into a price then traded like a commodity... then simply boom and bust.
Eventually the Price reaches a point that the actual productive economy can not afford. The value of the mortgage drops below the credit created (the banks deposit) in the first place. This then bleeds into all other industries (including the ones that actually make stuff) as bank credit starts to contract... as their deposit base contracts.
Of course credit is now created through central banks lending money to governments through bonds etc and these themselves are leveraged and this leveraging through derivatives have their only markets themselves. This exacerbated the problem even further.
If you read enoug history through this lens you will see each cycle has never been the same. The players slightly change, the economy setup changes, the type of government changes, the banking regulation and how they slightly operate chanages, some deflationary situations, some inflationary, floated dollar, controlled centralised pricing of the dollar ... you name it.
But the end result ultimately is always the same. And it's surprisingly regular...
this is because at the core of the problem (which has never changed ) is allowing government granted licenses (which are not a productive part of the economy) to be traded as a commodity. Speculation happens and valuable credit is used to chase the rent (free money). It is NOT put into productive partner of the economy. Well it is but too much is used to trade ...
this is hasn't changed hence we will get the boom and bust.
So lift your eyes out of the forest and see the whole picture. Don't get lost in the current economic situation and structures and think you can extrapolate from there. And ffs stop listening to the media and throw most most of your smarty pants economic knowledge in the bin. If it is so good, written by so called experts then why do they never see the bust coming (they never have) and why can the not explain it after?
They dont see the core root root of the problem. They have lumped land into the capital bracket and all their models can't see it coming. Then they pull out the black swan Bs.
And these so allied experts have got it wrong over and over and over again. Well into past lifetimes.
Am i reading it right that the government granted licences are land titles?
One could argue that land is productive.
It once was, mostly farm land. It is now coups for the productive hens to roost in before heading out to be producers, and consumers. Hell, I'm working at home 40%+ of the time now, making home a productive office.
Good post though :D
Select to expand quoteeppo said..nnnbrewery said..eppo said..
Credit creation lubricates the wheels of the economy ... it is necessary.
but when it is allowed for speculation and generation of economic rent on government granted licenses (property being the most lucrative of them all) and the gains to be capitalised then traded you get boom and busts which eventually are realised on the stock market. This is caused by the eventual contraction of credit as banks have forced to improve their balance sheets.
It is pretty simple really.
Dont panic. This is just the mid cycle correction playing out.
The most lucrative part of the cycle is yet to happen. That's when things really get wild.
Although this has only happened ONLY every cycle since 1800 (and before but figures were collected more after then).
SO take a deep breath. Watch the next two years and governments and banks start to take the gloves off the avoid a "recession ". Homeowners grant is a perfect example. This will only capitalise back into the price of property. They really have no clue what they aren't doing or what is really going on. If they did we wouldn't have had the same cycle play out over and over again.
Long way to go yet lads.
If you believe this is the "mid cycle correction"... then when was the last begin/end of cycle correction? We didn't have it in Australia at the GFC.
I am not so sure government efforts to take the gloves off will work. But I suppose if Scomo wants to deliver his surplus the only way we will avoid a recession is if it does.
Bottom was 2011 roughly 4 years after the GFC. We still had a property correction but this buffeted by the commodity boom and the fact that China created 28 trillion in debt in that time to finance their expanding economy. Local factors are always at play within the overall cycle.
Banks create credit which essentially means they create their own deposits. Have done for 200 odd years. This is not a new thing.
The biggest lender of this credit is the government (used to be kings and queens to finance war efforts... Rothschild lent to both the British and French ffs through the Napoleon war era).
They call these securities (interesting term) as it was essentially backed by the productive capacity of a country as monarchy's now modern governments can tax the living Fck out of their subjects to pay off this debt. (The only time a war debt was ever paid off completely was in 1886/1887 in America by the way).
Now this is all well well and good if the credit (through debt) is essentially backed only by the future productive wealth of a nation. Credit in that respect is a useful and good thing.
But when it is allowed to be used to speculate on government granted licenses (of which the property mortgage is the mother load of all license), when the non productive gains (the rent) is allowed to be capitalised into a price then traded like a commodity... then simply boom and bust.
Eventually the Price reaches a point that the actual productive economy can not afford. The value of the mortgage drops below the credit created (the banks deposit) in the first place. This then bleeds into all other industries (including the ones that actually make stuff) as bank credit starts to contract... as their deposit base contracts.
Of course credit is now created through central banks lending money to governments through bonds etc and these themselves are leveraged and this leveraging through derivatives have their only markets themselves. This exacerbated the problem even further.
If you read enoug history through this lens you will see each cycle has never been the same. The players slightly change, the economy setup changes, the type of government changes, the banking regulation and how they slightly operate chanages, some deflationary situations, some inflationary, floated dollar, controlled centralised pricing of the dollar ... you name it.
But the end result ultimately is always the same. And it's surprisingly regular...
this is because at the core of the problem (which has never changed ) is allowing government granted licenses (which are not a productive part of the economy) to be traded as a commodity. Speculation happens and valuable credit is used to chase the rent (free money). It is NOT put into productive partner of the economy. Well it is but too much is used to trade ...
this is hasn't changed hence we will get the boom and bust.
So lift your eyes out of the forest and see the whole picture. Don't get lost in the current economic situation and structures and think you can extrapolate from there. And ffs stop listening to the media and throw most most of your smarty pants economic knowledge in the bin. If it is so good, written by so called experts then why do they never see the bust coming (they never have) and why can the not explain it after?
They dont see the core root root of the problem. They have lumped land into the capital bracket and all their models can't see it coming. Then they pull out the black swan Bs.
And these so allied experts have got it wrong over and over and over again. Well into past lifetimes.
good points made re residential property boom bust set up. Agree with most of it but can you explain the timing side of it - ie -
"The most lucrative part of the cycle is yet to happen. That's when things really get wild.."
Why? I would have thought that we were already at the point where -
"Eventually the Price reaches a point that the actual productive economy can not afford."
If we are going to go up big time from here for 2 years how is that going to happen if most are already at or beyond their maximum borrowing capacity? If real residential property yields are zero or even negative in some cases, if loan to income ratios are at all time record highs?
Further rate drops from here will have very little effect on that capacity so how does this next wild leg happen?
Tell me its more than just because last time the cycle lasted 9 years and we are only 7 years on from the late 2011 bottom???
Select to expand quoteevlPanda said..eppo said..nnnbrewery said..eppo said..
Credit creation lubricates the wheels of the economy ... it is necessary.
but when it is allowed for speculation and generation of economic rent on government granted licenses (property being the most lucrative of them all) and the gains to be capitalised then traded you get boom and busts which eventually are realised on the stock market. This is caused by the eventual contraction of credit as banks have forced to improve their balance sheets.
It is pretty simple really.
Dont panic. This is just the mid cycle correction playing out.
The most lucrative part of the cycle is yet to happen. That's when things really get wild.
Although this has only happened ONLY every cycle since 1800 (and before but figures were collected more after then).
SO take a deep breath. Watch the next two years and governments and banks start to take the gloves off the avoid a "recession ". Homeowners grant is a perfect example. This will only capitalise back into the price of property. They really have no clue what they aren't doing or what is really going on. If they did we wouldn't have had the same cycle play out over and over again.
Long way to go yet lads.
If you believe this is the "mid cycle correction"... then when was the last begin/end of cycle correction? We didn't have it in Australia at the GFC.
I am not so sure government efforts to take the gloves off will work. But I suppose if Scomo wants to deliver his surplus the only way we will avoid a recession is if it does.
Bottom was 2011 roughly 4 years after the GFC. We still had a property correction but this buffeted by the commodity boom and the fact that China created 28 trillion in debt in that time to finance their expanding economy. Local factors are always at play within the overall cycle.
Banks create credit which essentially means they create their own deposits. Have done for 200 odd years. This is not a new thing.
The biggest lender of this credit is the government (used to be kings and queens to finance war efforts... Rothschild lent to both the British and French ffs through the Napoleon war era).
They call these securities (interesting term) as it was essentially backed by the productive capacity of a country as monarchy's now modern governments can tax the living Fck out of their subjects to pay off this debt. (The only time a war debt was ever paid off completely was in 1886/1887 in America by the way).
Now this is all well well and good if the credit (through debt) is essentially backed only by the future productive wealth of a nation. Credit in that respect is a useful and good thing.
But when it is allowed to be used to speculate on government granted licenses (of which the property mortgage is the mother load of all license), when the non productive gains (the rent) is allowed to be capitalised into a price then traded like a commodity... then simply boom and bust.
Eventually the Price reaches a point that the actual productive economy can not afford. The value of the mortgage drops below the credit created (the banks deposit) in the first place. This then bleeds into all other industries (including the ones that actually make stuff) as bank credit starts to contract... as their deposit base contracts.
Of course credit is now created through central banks lending money to governments through bonds etc and these themselves are leveraged and this leveraging through derivatives have their only markets themselves. This exacerbated the problem even further.
If you read enoug history through this lens you will see each cycle has never been the same. The players slightly change, the economy setup changes, the type of government changes, the banking regulation and how they slightly operate chanages, some deflationary situations, some inflationary, floated dollar, controlled centralised pricing of the dollar ... you name it.
But the end result ultimately is always the same. And it's surprisingly regular...
this is because at the core of the problem (which has never changed ) is allowing government granted licenses (which are not a productive part of the economy) to be traded as a commodity. Speculation happens and valuable credit is used to chase the rent (free money). It is NOT put into productive partner of the economy. Well it is but too much is used to trade ...
this is hasn't changed hence we will get the boom and bust.
So lift your eyes out of the forest and see the whole picture. Don't get lost in the current economic situation and structures and think you can extrapolate from there. And ffs stop listening to the media and throw most most of your smarty pants economic knowledge in the bin. If it is so good, written by so called experts then why do they never see the bust coming (they never have) and why can the not explain it after?
They dont see the core root root of the problem. They have lumped land into the capital bracket and all their models can't see it coming. Then they pull out the black swan Bs.
And these so allied experts have got it wrong over and over and over again. Well into past lifetimes.
Am i reading it right that the government granted licences are land titles?
One could argue that land is productive.
It once was, mostly farm land. It is now coups for the productive hens to roost in before heading out to be producers, and consumers. Hell, I'm working at home 40%+ of the time now, making home a productive office.
Good post though :D
Well yes they are. So are taxi licenses hence why the apparent uproar. Here we have a highly efficient and let sure face it better service ... include say air BNB in there but apparently, for some unknown reason this is a bad thing. The broad band spectrum ... the list goes on.
Alright tell you what. Grab a few lads and go into every house on your street and throw the occupants out. Call the house and the land you sit on yours now. Whilst you are at it setup your own mining operation on say Alcoa leases. Ah Fck it, also create your own bank and start printing your own currency.
Whats gonna happen. The law and its enforcers ... government would send in the armed forces if it got too out of hand.
They are indeed exclusive government granted licenses.
Now of course we have to have them, especially in productive parts of the economy (which does NOT include banks) For stability and to encourage investment.
But land. It should be held by the government for the people. We should be levied a simple straight forward tax for the privilege of occupying / using that land. This tax should then be used to fund productive parts of the economy and provide services. This would wash away the economic rent derived and speculation would be stopped in its tracks. It's would also wash away the majority of tax les we have now, including most personal income tax. The land should only be leased and the ownership held by the people through the government. But hey we just sell it all away now generally to foreign interests. We just give away our future wealth production to pay for now ... although this wealth goes to the elite.
People would be forced to make their land productive in some manner or form. It would stop large investors buying tracks of land and just sitting on them for years.
... okay a new hospital, airport and railway is built somewhere. Pad by tax dollars ... out tax dollars. Who benifits from the increase in land? The tax payer? Nope the private land owner that's who. Can you see it?
Who funds this speculation? Banks do. What happens when the banks balance sheet goes into the red by over speculation and over lending? Do the banks foreclose and go bunkrupt like most businesses ?
Nope again... the tax payer bails then out. How does the government afford to bail them out ? Mostly from government bonds. Who lends them the money for the bonds ? Oh it's the same ****ing banks.
Can you now now see how the wealth has been transferred back to the elite now?
The 1837 crash in America was caused by the rapid reduction in the piece of cotton due to efffient machines and Britain sourcing it from India? That's what history tells you. But if fails to mention the incredible speculation that ensured to secure land around cotton producing areas ... and the wild cats banks (literally multiple hundreds of them) created to fund this speculation.
Cotton industry nearly collapsed overnight night. But an economy can always restructure etc to sort through that. But it cannot recover quickly from stupid speculation on land due to economic rent available.
Still think the 1929 crash and depression was caused my over speculation on the stock market ? Nope. That's the effect. Where did the credit come from to allow this ... banks. Where did the banks get enough virtual deposits to fund it ... crazy land price increases.
When you see it it as obvious as the nose on your face. If land isn't involved don't panic. The economy will recover and quickly. If land is involved ... batten down the hatches.
