Select to expand quoteBara 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.
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???
Look at the US economy. We are a piss ants piss droplets and usually a year or so behind. Look at job figures, IPO numbers, etc etc. they are looking okay. And they have one of the worlds greatest property mongels in office. He's already softening up bank regulations that were put in in stop out of control credit creation. But this happens in every cycle anyway.
Select to expand quoteeppo said..Bara 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.
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???
Look at the US economy. We are a piss ants piss droplets and usually a year or so behind. Look at job figures, IPO numbers, etc etc. they are looking okay. And they have one of the worlds greatest property mongels in office. He's already softening up bank regulations that were put in in stop out of control credit creation. But this happens in every cycle anyway.
in a concluding nutshell we mortgage the earth the banks and end up working for them, instead of the other way around.
Select to expand quoteeppo said..
... okay a new hospital, airport and railway is built somewhere. Pad by tax dollars ... our tax dollars. Who benefits from the increase in land? The tax payer? Nope the private land owner that's who. Can you see it?
Subtle but perhaps interesting correction; Hospitals, airports and roads are not paid for by our tax dollars, it is paid for by a loan, that is then repaid using our tax dollars. (usually)
The government borrows money to pay for all its services (sans any surplus). That is fresh money coming into the system, out of thin air. Money from our taxes are then taken out of the system to balance it, else hyper inflation.
i.e. the government pays for its services, then it collects taxes. Not the other way around.
It sorta works out the same, but it sorta doesn't work out the same too.
true, but relative semantics.
Ultimately Taxation pays for services that ultimately increases the Rent collected by private land owners, due to those services we have paid for. Gains always end up back in land and hence transferred away from the people to small minority. Just as what is happening right now in silicon valley... try and find an affordable place to live to enjoy working in the technology boom happening there.
All governments and the elite want therefore, create inflation - It's an indirect and insidious tax really...
It's like we need some other sort of asset class to store value/wealth in..
Something that doesn't distort things property prices, Something that doesn't deflate. Something that doesn't require digging huge holes in forests to get. Something that doesn't distort the intrinsic value of the useful commodity itself (gold, diamonds, if we ever use water we're ****ed). Something universally recognised. Something like a modern, digital gold.
It sounds familiar.
Select to expand quoteevlPanda said..
It's like we need some other sort of asset class to store value/wealth in..
Something that doesn't distort things property prices, Something that doesn't deflate. Something that doesn't require digging huge holes in forests to get. Something that doesn't distort the intrinsic value of the useful commodity itself (gold, diamonds, if we ever use water we're ****ed). Something universally recognised. Something like a modern, digital gold.
It sounds familiar.
The attraction of gold is the fact that it cannot be devalued. Well I guess it could in the unlikely event that a source was discovered where the quantity and access to it made it no longer a rarity. But you cannot change the nature of 22 carat gold. That is why when people tell me that an ounce of gold is now worth $1285 an ounce I usually correct them. It is the dollars which change value.
It is now possible to design a modern digital "gold" which is more secure than gold. It has been done as you are alluding. Problem with it is that it cannot be manipulated which is one of the major attractions of fiat currency for the banking community.
Way I see it anyway!
Select to expand quotejapie said..
Ron Paul quizzing Bernanke gets him to admit that inflation is a tax:
Perfect. Good to see Burnyankie cough it up.
Inflation essentially reduces the relative debt as you are paying the same dollar face value with a dollar that is actually reduced in value. That's why governments and their corporate puppet masters want it. But for the common wage earner it just reduces their relative wealth year after year. And yet this inflationary target set by the reserve bank is accepted as just a normal thing. It's just once again yet another method of transferring wealth to the elite. God forbid if we have deflation ... they will take interest rates below zero (so now people pay the bank to keep their money) to get that old inflation tax running again.
ps even gold gets pounded in a crash as people off load it to pay down debt they have incurred in the good times.
Select to expand quoteeppo said..
Inflation essentially reduces the relative debt as you are paying the same dollar face value with a dollar that is actually reduced in value. That's why governments and their corporate puppet masters want it. But for the common wage earner it just reduces their relative wealth year after year. And yet this inflationary target set by the reserve bank is accepted as just a normal thing. It's just once again yet another method of transferring wealth to the elite. God forbid if we have deflation ... they will take interest rates below zero (so now people pay the bank to keep their money) to get that old inflation tax running again.
ps even gold gets pounded in a crash as people off load it to pay down debt they have incurred in the good times.
From a community/market perspective, deflation or low inflation encourages people to just sit on their money. i think the government states that they want a low late of inflation to keep the flow of money happening, as it encourages people to spend their money or invest it. If people stop spending money, the economy slows down a lot.
Select to expand quoteFormulaNova said..eppo said..
Inflation essentially reduces the relative debt as you are paying the same dollar face value with a dollar that is actually reduced in value. That's why governments and their corporate puppet masters want it. But for the common wage earner it just reduces their relative wealth year after year. And yet this inflationary target set by the reserve bank is accepted as just a normal thing. It's just once again yet another method of transferring wealth to the elite. God forbid if we have deflation ... they will take interest rates below zero (so now people pay the bank to keep their money) to get that old inflation tax running again.
ps even gold gets pounded in a crash as people off load it to pay down debt they have incurred in the good times.
From a community/market perspective, deflation or low inflation encourages people to just sit on their money. i think the government states that they want a low late of inflation to keep the flow of money happening, as it encourages people to spend their money or invest it. If people stop spending money, the economy slows down a lot.
. the governments the problem in the first place and you listen to those morons? Whatever the government is saying, do the damn opposite. Follow the money man. Vested interests spruiking the idiot population.
No inflation would mean the market would find it's natural equilibrium between buyers and sellers, between true value and bogus value..and credit hungry speculators would left to dust. Inflation is a very important tool for reducing government debt...and that's it, end of story. it's all part of the phoney fractional reserve thin air money system that is created through debt - government debt mainly (but not all).
inflation robs the wage earner, that's it. Inflation keeps the bogus money system ticking along and robbing citizens of their wealth and transferring it to the 1%. Rich poor gap growing you say...well now you nearly know why.
yeh deflation is not a great thing for sure...it made the 1837 crash horrendous, especially for America. The japs climbed even higher into this phantom economy and circumnavigated this by charging negative interest rates...which creates a whole bag of other problems. Now that's a powder keg ready to explode that one.
I do not pretend I know how this fractional banking system works suffice to say my advice if the SHTF is to be out of debt. A big interest rate increase will see many sink in to financial ruin.
Defaltion first and then inflation later will rob the people of their wealth.
Inflation will rob the folks that survive this financial meltdown.
You are a millionaire with your money In the bank but with huge inflation you are overnight worth only a small percentage of previous. Buy gold and silver it's a great insurance policy.
If you have a sizeable mortgage I'd be selling fast.
Select to expand quotepetermac33 said..
I do not pretend I know how this fractional banking system works suffice to say my advice if the SHTF is to be out of debt. A big interest rate increase will see many sink in to financial ruin.
Defaltion first and then inflation later will rob the people of their wealth.
Inflation will rob the folks that survive this financial meltdown.
You are a millionaire with your money In the bank but with huge inflation you are overnight worth only a small percentage of previous. Buy gold and silver it's a great insurance policy.
If you have a sizeable mortgage I'd be selling fast.
How many years now have you been living under that bridge with your silver, hoping for that crash?
Select to expand quotepetermac33 said..
I do not pretend I know how this fractional banking system works suffice to say my advice if the SHTF is to be out of debt. A big interest rate increase will see many sink in to financial ruin.
Defaltion first and then inflation later will rob the people of their wealth.
Inflation will rob the folks that survive this financial meltdown.
You are a millionaire with your money In the bank but with huge inflation you are overnight worth only a small percentage of previous. Buy gold and silver it's a great insurance policy.
If you have a sizeable mortgage I'd be selling fast.
It all goes in every cyclic correction (funny how we call it a crash, it's just the market finally purging too much good money chasing the rent). Silver, gold - it all goes in the great barbecue sale. But yeh if things really do go to **** (for instance this time round could very well be the death of the US dollar as the currency for international trade ... and my god have they had the printing presses cranked up this cycle). As we climb out the pit and before a new currency is accepted, yeh gold etc can be a decent hedge. But only for a short while. The trick is holding it long enough to make it worthwhile. So have your debts sorted beforehand. Because if you are over leveraged your precious gold and silver will also have to go!
the way money (which is debt) is created can be explained to 12 yr olds. Easy to understand and worth understanding.
also there is. I thing wrong with the way money comes into the world. It lubricates the cogs of the economy. It creates the standard of living we all enjoy now.
But when that money is used to speculate (especially on land) and not for productive purposes ... then we have a big problem that takes 18 odd years to run its course. Simple really.
Hyperinflation is coming here
I wrote about it a year or so ago, with the current leveraging it may be the only way people can clear the slate again.
Currently 80% of everyone's income tax goes towards the social system, dole, pension, etc etc.
Income tax was never ever supposed to be used for that.
lets say you make $100 and get taxed $30
your left with 70
you full your car up with $50 of fuel of which around $20 of that is tax......
you decide to spend your last $20 on items with a goods and services tax you get $18 worth of goods.
Out of your $100 you have been taxed at a 52% tax rate.
The current format is not sustainable, tax breaks coming whilst small will not help the economy.
Unless most tax is no longer applicable the only way to dig out of this hole in the next ten years is hyperinflation,,,,, but no one wants it do they????????
excessive credit (debt) creation will cause hyperinflation. Then if the yield curve inverts we are in big trouble in little Australia. We can only keep interest rates this low for so long. The US are normalising rates. Capital will flee our shores if we don't raise them. Funny how people even care about what are reserve banks says or does. Funds are increasingly sourced overseas. That's why banks don't really give two sh1ts about the cash rate and will charge us more if need be.
Select to expand quoteeppo said..
excessive credit (debt) creation will cause hyperinflation. Then if the yield curve inverts we are in big trouble in little Australia. We can only keep interest rates this low for so long. The US are normalising rates. Capital will flee our shores if we don't raise them. Funny how people even care about what are reserve banks says or does. Funds are increasingly sourced overseas. That's why banks don't really give two sh1ts about the cash rate and will charge us more if need be.
Yes easy credit should lead to inflation even hyper inflation. Thats what the economic theories say.
Except we have had unprecedented debt creation on a global scale for more than a decade and what are the central banks worried about??
too low inflation/ deflation.
Without inflation governments cant tax away their debt burdens.
Its got central banks scratching their heads. They dont know what to do and frankly they have used up pretty much all their bullets now anyway. Our own RBA has a few cuts left up its sleeve and its going to shoot them now way too early to have any real impact. Like you say the banks wont pass much on anyway - they are majority funded in USD.
If we hadnt had the emergency easy money policies we would have already seen the deflation spiral spin out of control I suspect. A necessary corrective mechanism to the debt excesses was "successfully" avoided.
How many decades of economic growth have we already dragged forward into today to stop the deflation bogey?
we are in uncharted territory. US bond curve is inverted again. This is what you should watch though it has a variable lead time. Smarter more informed cats than the likes of us drive the yield curve.
I know enough to know that I dont know exactly how this will play out and when but i do know this -
The LAST place you want to be right now is in a leveraged up illiquid asset like residential property.
Select to expand quoteFormulaNova said..eppo said..
Inflation essentially reduces the relative debt as you are paying the same dollar face value with a dollar that is actually reduced in value. That's why governments and their corporate puppet masters want it. But for the common wage earner it just reduces their relative wealth year after year. And yet this inflationary target set by the reserve bank is accepted as just a normal thing. It's just once again yet another method of transferring wealth to the elite. God forbid if we have deflation ... they will take interest rates below zero (so now people pay the bank to keep their money) to get that old inflation tax running again.
ps even gold gets pounded in a crash as people off load it to pay down debt they have incurred in the good times.
From a community/market perspective, deflation or low inflation encourages people to just sit on their money. i think the government states that they want a low late of inflation to keep the flow of money happening, as it encourages people to spend their money or invest it. If people stop spending money, the economy slows down a lot.
These two points are definitely both sides of the coin. Nice summary.
At the moment though practically everyone has their "money" tied up in property, one way or another. You are an owner with vast equity, an owner with vast debt, or a renter with huge rent. (and of course in-between).
The money is not flowing because everyone is spending an inordinate amount of money on property, one way or another. I know I am. There is little left to actually spend in the wider economy.
The huge, highly illiquid property market is bringing the economy to a freeze.
People prefer putting their wealth into deflating assets, of course. One way or another that's where it is going to go. Making money deflationary inflationary only means people will move excess value/wealth/savings from money into something else! It doesn't, at all, make them spend it as an operational expense. It's still tied up. Frozen.
Perhaps an essential like housing isn't a good deflating asset to use as a society's primary investment vehicle.
Select to expand quoteBara said..eppo said..
excessive credit (debt) creation will cause hyperinflation. Then if the yield curve inverts we are in big trouble in little Australia. We can only keep interest rates this low for so long. The US are normalising rates. Capital will flee our shores if we don't raise them. Funny how people even care about what are reserve banks says or does. Funds are increasingly sourced overseas. That's why banks don't really give two sh1ts about the cash rate and will charge us more if need be.
Yes easy credit should lead to inflation even hyper inflation. Thats what the economic theories say.
Except we have had unprecedented debt creation on a global scale for more than a decade and what are the central banks worried about??
too low inflation/ deflation.
Without inflation governments cant tax away their debt burdens.
Its got central banks scratching their heads. They dont know what to do and frankly they have used up pretty much all their bullets now anyway. Our own RBA has a few cuts left up its sleeve and its going to shoot them now way too early to have any real impact. Like you say the banks wont pass much on anyway - they are majority funded in USD.
If we hadnt had the emergency easy money policies we would have already seen the deflation spiral spin out of control I suspect. A necessary corrective mechanism to the debt excesses was "successfully" avoided.
How many decades of economic growth have we already dragged forward into today to stop the deflation bogey?
we are in uncharted territory. US bond curve is inverted again. This is what you should watch though it has a variable lead time. Smarter more informed cats than the likes of us drive the yield curve.
I know enough to know that I dont know exactly how this will play out and when but i do know this -
The LAST place you want to be right now is in a leveraged up illiquid asset like residential property.
Nice work Bara. Someone is getting it. They can only kick the can down the road for so long until their whacky PHD models get destroyed by the markets.
They think they can control the markets and play god with them, pulling this lever and that one. But their economic models have one underlying root problem. They have combined land with capital. Therefore they are corrupted. They ignore the true variable of land and its characteristics. Then like last time they will scratch their heads (these are meant to be the experts mind you) and give no explanation as to why it went tits up...yet again. If you read through history you will see the same so called experts of the time without a clue before the crash, during, then after the cyclic crash. It's actually scary just how naive they are and these are bastards pulling the levers!!
Unfortantely like always the banks will be saved but the people will be ruined...From 2007 maybe after the bank bailouts across the globe?
Nope!!!!...The above quote is from William Gouge, commenting on the Panic of 1819
And you think things aren't cyclic... same same same bucket just slightly different sh1te.
ps don't quite agree with on property right now. it still has the second half and most lucrative of the cycle to go...unless this cycle is "different" this time. Again another comment made by so called experts during each cycle.
Select to expand quotebazz61 said..
heading back up gain ... time to buy..?
No. Time to sell and get out of the crap hole.
Select to expand quotecisco said..bazz61 said..
heading back up gain ... time to buy..?
No. Time to sell and get out of the crap hole.
Sydney or Australia?
Select to expand quotebazz61 said..
heading back up gain ... time to buy..?
Yes because the media outlets say so and all the lemmings are jumping back in. Perfect time. 
Sydney. Australia has a lot better options for places to live than the capital cities.
They are called capital cities because you need a lot of capital to live in them.
Select to expand quotebazz61 said..
heading back up gain ... time to buy..?
"Even a dead cat will bounce if it falls from a great height"
What's the view with now of all with the Covid / China situation? It appears so far.....prices haven't been impacted greatly. I know eppo says 200 years of history can't be ignored, but I can't see how the (property) speculation can be driven higher in the face of looming depression and the threat of conflict? Maybe this cycle will peak / has peaked early?
