As an investor you are either 1. Buying existing shares from another investor. The seller of the share gets the money, and the company get no money at all (i.e.: 99.999% of all share trades) 2. Participating in a primary or secondary issue.
That's just semantics. Plenty of bank bonds are sold between parties and the bank is not involved, plenty of corporate bond debt is likewise sold between investors outside of the corporations control. Does that mean these are not debt either?
What happened to Perth population, average wages, average wealth, and supply response between 02/03 and say 07/08?? Hmmmmm?
You're making my point for me.
Property acquisition as a topic was almost a national obsession. You couldn't even call it speculation as the buyers all presumed the price of property could only go up. That’s why we use the word obsession. Ordinary people were buying properties for their young children who had not even left school assuming they would not be able to afford property of their own when they left college- Klaus Regling on Ireland. Sound familiar?
The evidence of nearly 40 cycles in house prices for 17 OECD economies since 1970 shows that real house prices typically give up about 70 per cent of their rise in the subsequent fall, and that these falls occur slowly. Morgan Kelly:On the Likely Extent of Falls in Irish House Prices, 2007
I don't think anyone has ever argued that those things are not fundamental drivers of particular property markets have they? Except for maybe some hardcore housing bears who insist that nothing else matters except "easy credit"....
szokolay
22 Jul 2014, 03:48 PM
That's just semantics. Plenty of bank bonds are sold between parties and the bank is not involved, plenty of corporate bond debt is likewise sold between investors outside of the corporations control. Does that mean these are not debt either?
It's not semantics - trading an existing bond does not *expand* existing private debt. Only a newly issued bond creates a new debt.
I don't think anyone has ever argued that those things are not fundamental drivers of particular property markets have they? Except for maybe some hardcore housing bears who insist that nothing else matters except "easy credit".... It's not semantics - trading an existing bond does not *expand* existing private debt. Only a newly issued bond creates a new debt.
Fundamentals like investor sentiment for example?
Au contraire, Shadow ignores them all the time. (or rather he takes them for granted)
Property acquisition as a topic was almost a national obsession. You couldn't even call it speculation as the buyers all presumed the price of property could only go up. That’s why we use the word obsession. Ordinary people were buying properties for their young children who had not even left school assuming they would not be able to afford property of their own when they left college- Klaus Regling on Ireland. Sound familiar?
The evidence of nearly 40 cycles in house prices for 17 OECD economies since 1970 shows that real house prices typically give up about 70 per cent of their rise in the subsequent fall, and that these falls occur slowly. Morgan Kelly:On the Likely Extent of Falls in Irish House Prices, 2007
Huh? Your reading comprehension is even worse than Ted.
My apologies there, I dropped the ball. I'll remember to have my morning coffee before posting here from now on.
So, back to the volatility question - do you have any explanation for the behavior of our PE ratio over the last 10 years? Or is it just 'cycles'.
"It were not best that we should all think alike; it is difference of opinion that makes horse races." - Mark Twain on why he avoids discussing house prices over at MacroBusiness. "Buy land, they're not making any more of it." - Georgist Land Tax proponent Mark Twain laughing in his grave at humourless idiots like skamy that continually use this quip to justify housing bubbles.
It's not semantics - trading an existing bond does not *expand* existing private debt. Only a newly issued bond creates a new debt.
True, however if the demand for bonds is greater than the supply, the price of bonds rise, their yield falls, and it becomes cheaper for issuers to issue another bond. When it becomes cheaper to issue debt, historically at least, you get more debt, and the converse is also true.
So, back to the volatility question - do you have any explanation for the behavior of our PE ratio over the last 10 years? Or is it just 'cycles'.
Yes, it's the cycle. From year to year prices can rise, fall, or stagnate, but wages tend to rise every year. This means some years prices move ahead of incomes, and some years prices fall back while incomes catch up, with the net result being that Australia's house price to income ratio is roughly the same as it was over a decade ago.
Veritas
22 Jul 2014, 11:05 AM
There must be something else at work here
Yes, the cycle does not follow exactly the same dates in every city.
Again a strange comment. What debt exceed 100% of GDP? Household debt? Private debt? Foreign debt? Government debt? Total debt?
If you are suggesting private debt or total debt, then I think we have already past that point, and monetary policy still works fine.
Household debt, because households in general are consumers not producers. 100% is my personal number. For the sake of argument, let's call it 'some percentage at which the following occurs'.
1. Leaving aside endogenous money for a minute, interest receipts are split (roughly) between savers with deposits, and lenders who charge a spread between savers and borrowers. As interest rates decline, deposit holders see their receipts decline, but lenders spreads don't change much. So as interest rates go down, lenders receive an increasingly large slice of the interest pie. As interest rates decline and debt increases, a larger and larger financing drag on the economy develops, as depositors income falls faster then borrower's costs.
2. New credit is not exactly equal to new money. When a bank buys (for example) a mortgage and creates a deposit, more often than not, the seller of the property extinguishes their own mortgage (closing out of both the mortgage and the corresponding deposit). The difference between the credit/deposit/new money created and the debt/deposit/old money destroyed is the actual new money created. The more debt the seller carries, the smaller the creation of new money through mortgage lending (for example). When all sellers are carrying more debt than new borrowers are borrowing, it makes no difference how low interest rates are or how much new credit is created, because the sellers will be destroying money faster than the borrowers are creating it. When the money supply decreases in an environment where the supply of goods and services and the stock of assets stays constant, you get deflation, as more assets,goods,services chase an ever decreasing money supply.
3. Let's say the lender's spread is 2.5% and the outstanding household debt is $100, and there is $5 of nett new money created each year. So, after the interest is paid, there is $2.50 of new money created each year. Now, let's ramp up household debt to $1000. The financing drag is now $25, and there is $10 of nett new money created each year. The balance is now -$15, which initially will come from savings. This is a balance sheet transfer from private savings to bank earnings. If these earnings are then re-lent (creating even greater debt), there is a feedback loop. If the earnings are payed out as dividends into superannuation accounts, spending will be deferred, if payed to wealthy individuals as income, tax receipts will increase, but spending will, on average decline (as poor people spend 110% of their income and wealthy people spend 85% of their income). In any case, spending decreases and deflation ensues.
I don't think anyone has ever argued that those things are not fundamental drivers of particular property markets have they? Except for maybe some hardcore housing bears who insist that nothing else matters except "easy credit"....
szokolay
22 Jul 2014, 03:48 PM
That's just semantics. Plenty of bank bonds are sold between parties and the bank is not involved, plenty of corporate bond debt is likewise sold between investors outside of the corporations control. Does that mean these are not debt either?
It's not semantics - trading an existing bond does not *expand* existing private debt. Only a newly issued bond creates a new debt.
I never claimed it did. I simply pointed out that it is all debt. When you buy US bonds you are making a bet basically that the $US dollar will rise in value against other currencies, and or, the yield on them will keep you ahead of the inflation rate. When you purchase shares in a company you are doing the exact same thing but the risk is greater.
At the end of the day the company has borrowed money off you and agreed to pay you an interest rate for the privelige. Even savings accounts at banks are a loan to the bank, look up the fine print and that is what it states. They pay you interest on the loan don't they?
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