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House prices to keep falling for years

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regarding the deposit guarantee...it should never have been 1 million....
as far as I can see...the govt would just print money to guarantee it...no need to bring an insurance company into the equation...aka AIG...who need funding themselves...again...and how many times again...

banking needs to go back to the 'old' days...you made a deposit and they loaned it to business or home buyers...and took a percentage on the way...no derivatives..foreign money or huge salaries for the ceo's....simple
everyone was happy....credit was harder to get...

as for business finance...its usually backed by residential property....the banks are charging a higher rate....like the old days...but its a tax deduction for business anyway...tightening up...??? well maybe they want resi backing again

we will follow the US and the UK in printing money to cover the huge bailouts...so printing money for the banks, car makers, or depositors....no difference who it covers...

anyway everybody's supposed to love the krudd...so he just has to give his word and they will believe him, trust me, its safe with me etc...won't they ???
http://www.news.com.au/business/story/0,27753,25146495-462,00.html
 

I don't know if the financial system works like that.

Australian dollars never really leave the country, just the ownership. Saying that foreign money can't be used for credit - well I don't know.

If foreigners earn our money what do they do with it? They either cash it in for their money or put it in an Australian bank (few cash it out as notes and put it under their beds). Someone in the end holds possession of AUD in a bank here (a deposit). This deposit gets lent out even if the ownership is elsewhere. We can still accumulate foreign debt this way through the banking system. This to me though is manageable.

What is a bank account? It really is just like a bond that banks issue overseas to raise foreign money. You don't have 'money' in a bank account - you have an account that like a bond states what you have lent to the bank and the interest you will get (whether fixed or floating).

What I don't agree with is borrowings in terms of another currency (such as in USD because the rates are lower). We shouldn't be allowed to borrow in their terms but only on our home soil. Credit therefore would be harder to come by - you are correct but that doesn't mean we wouldn't be having large interest payments overseas.

Derivatives are not bad in their most basic form. It's when people don't specify all the risks in them that something goes wrong, or they derive of a measure that is being measured wrong (i.e default risk). with more complexity comes increased chance of failure.
 
It is exactly the situation of credit being harder to get and govts printing money that is partially why I am so bearish on property. When the money is printed inflation will soar and interest rates will rise. So you get the combination of higher rates plus tighter credit rationing by the banks. Chuck in higher unemployment, factor in how relatively unaffordable property is now and you have a market with very few buyers and only one way to go.

On the flip-side is the housing shortage and govt handouts. Those two factors are harder to predict as the barriers are not economical but political machinations (govt grants/tax handouts) and incompetence (State govt don't release land). I agree that as long as they are maintained there is an artifical floor on how low property can go (assuming our economy doesn't totally crash and burn like Spain, Japan, Iceland or Ireland)
 

I thought printing money reduces interest rates at which people can borrow? The more money in the market, the less the price. However in terms of the fx market the currency will fall as well. I always thought of printing money like a share issue except the business profits are not diluted but instead the country's real GDP and their capacity to pay yield - each holder of a dollar gets less of the total yield the country creates, and owns less of the pie. Interest rates only rise if the central bank prints money with one hand, and sells bonds to mop up the cash in the other and even then it affects each market differently.

Bit hazy on the subject. Haven't looked at it in awhile. Would be interested to know if this is what other people think as well.
 
Taltan said:
When the money is printed inflation will soar and interest rates will rise.
Click to expand...

This is good because with higher inflation wages will rise faster and the $ value of my loans diminishes.
Can't afford the increased repayments?
No problem, we fix our loans early and wait for our wages and rents to go up in line with inflation.
 
the more money floating around becomes well..worth less...you need more dollars to pay for what you need....milk 2.00 yesterday is 2.50 today....
that house you bought yesterday is worth more today...well its worth the same as yesterday...except you need more dollars today....(the cost versus value argument) to buy it
the mortgage remains the same in dollar terms....but the interest rate rises...and so does the cost / value of the house....
we have just been there and done that....last year.....

only the printing of billions of dollars now..is it 100 billion yet ?

devalues yesterdays dollars by that 100 billion......or thats how I understood it
 


hello,

spot on Kincella, the safety of bricks & mortar

no spin, no management, no boards, fantastic

what a day, bit of rain in east, nirvana

sorry i know i know i know, it takes 6 to 12 mths for us to follow the US and no one will have a job in 2010

thankyou
robots
 

Market forces WILL fix any overpricing, like you said but the market is being manipulated with the government grants.

We all know what happens when you manipulate markets. It creates bubbles and makes the inevitable bust alot worst then letting the market work itself out

Our version of sub-prime are the grants
 


banking doesn't just needs to go back to the 'old' days. The whole system needs to be redone. If you know about the 'fractional reserve' system that banks operate to give credit, then that's what needs to be redone.

Because when you think about it all banks in the world are just Ponzi Schemes. It seems the world operates on a ponzi scheme - government, banks etc
 
Dowdy said:
We all know what happens when you manipulate markets. It creates bubbles and makes the inevitable bust alot worst then letting the market work itself out
Click to expand...

Good point, I agree governments should not manipulate the property market
and those first home buyers should not be given a free deposit to buy a house, they should work and save for a deposit as we did.
 

Do you understand the concept of economic growth and how that fit's in with the fractional reserve banking system and process of money creation? It's not a ponzi scheme if there is genuine economic growth, productivity improvements, innovation, etc supporting the creation of money via credit through the fraction reserve mechanisms..... economics 101! Don't believe all the conspiracy crap you read on the internet.....

Beej
 


Ahhhh...bless your cotton socks Beej. 10 out of 10 for effort!
 
http://www.news.com.au/business/money/story/0,28323,25149947-5013951,00.html

Still beer & skittles?
 

I totally agree.


Take note, Beej reckons the Global Financial Crisis is just a internet conspiracy.
 
Macquack said:
Take note, Beej reckons the Global Financial Crisis is just a internet conspiracy.
Click to expand...

No - that's not what I said at all - please re-read my post, apologise for mis-representing what I said, and try again....

Beej
 
Beej said:
No - that's not what I said at all - please re-read my post, apologise for mis-representing what I said, and try again....

Beej
Click to expand...

Sorry Beej for interpreting what you said differently to what you were trying to say. You did leave yourself open for that response.

You say
"It's not a ponzi scheme if there is genuine economic growth, productivity improvements, innovation, etc supporting the creation of money via credit through the fraction reserve mechanisms"

Does that mean you are acknowledging it is a ponzi scheme if there is NO genuine economic growth to back up endless credit creation by private banks?
 

That is a slightly more reasonable interpretation of what I am trying to say, but I still think the use of the term "ponzi scheme" to describe the process of money creation in fractional reserve banking, even when it goes awry, is over the top. Yes - of course if there is no growth, no innovation, no productivity improvements, and yet the money supply/credit continues to grow, then that is certainly problematic. In my mind this is more a question of adequate rules/regulation though rather than an indictment of the very fabric of the system as many here would suggest.

The current GFC, fundamentally, has occurred because huge amounts of credit was created (mainly in the US) that even at the time it was created had just about zero chance of ever being repaid - it was a ticking time bomb waiting to explode. If this is ever allowed to happen, then there are going to be big problems. In the current case it was made worse through the complex securitisation products that were dreamt up that wrapped up and hid the problem loans, the unregulated credit derivative markets (credit default swaps etc), and of course the US holding interest rates way too low for too long (this is the part I guess more directly related to the fractional reserve banking system). End result, if credit freezes due to the complete removal of confidence in the system as in the GFC case, then economies contract - hard.

BUT - I maintain that the whole GFC is not in and of itself "proof" that the whole fractional reserve system is a sham. It could have been avoided if US monetary policy had been set differently, and if there had been more/better rules and regulation in place related to my above points.

In AU we did not commit many of the above "sins", but are dragged into the whole affair anyway through globalisation and the impact via our trading partners (our economy is very dependent on trade at the macro level after all). Fortunately we have nowhere near the credit freeze problems that the US/UK have, and our banking system is still functioning reasonably well, holding up a degree of confidence in the system. We also don't have the huge amounts of bad credit to deal with - and the corresponding mammoth number of mortgage defaults etc. In my mind our recession will be more "regular" than the US one is - in that we can recover through internal factors such as getting the building/housing industry kick started again and external factors when demand picks up again for our commodity exports.

My 2c worth,

Cheers,

Beej
 
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