One of the narratives I've noticed from property bulls on this forum over the last couple of years is the idea that the RBA still has "plenty of firepower left" i.e. will be able to cut rates, buy currency, bonds, do whatever it takes to keep property prices rising at current levels, so enjoy the ride and house prices to the moon etc etc.
As a counter-argument I've been suggesting that this firepower is non-existant - that only big currencies like the euro and the us dollar have the financial gravitas to make these kinds of manipulations. My argument runs more along the lines that the aussie dollar is at it's core still the pacific peso, and as bigger western nations begin their fiscal tightening cycle we will see a massive wave of capital flight that will sink our dollar into the 50's, force up yields on bonds and ultimately mortgage interest rates, precipitating a housing crash of epic proportions.
Well behold, we now have dramatic evidence that this process is beginning in earnest:
"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.
One of the narratives I've noticed from property bulls on this forum over the last couple of years is the idea that the RBA still has "plenty of firepower left" i.e. will be able to cut rates, buy currency, bonds, do whatever it takes to keep property prices rising at current levels, so enjoy the ride and house prices to the moon etc etc.
As a counter-argument I've been suggesting that this firepower is non-existant - that only big currencies like the euro and the us dollar have the financial gravitas to make these kinds of manipulations. My argument runs more along the lines that the aussie dollar is at it's core still the pacific peso, and as bigger western nations begin their fiscal tightening cycle we will see a massive wave of capital flight that will sink our dollar into the 50's, force up yields on bonds and ultimately mortgage interest rates, precipitating a housing crash of epic proportions.
Well behold, we now have dramatic evidence that this process is beginning in earnest:
Tended to feel the same way as you on this one until recently John.
Then it came to my attention that Canada was on a 0.5% central bank interest rate.
And went, Well if the BoC can do it then why couldn't the RBA???
And yeah sure, I know Canada is in recession now regardless, but the point remains (to me anyway) that the RBA just mightn't be quite as 'short on ammo' yet as some (namely us bears) would have possibly inclined to assuming?
And as I also said to Chris a while back, in my bit of the nation (Brisvegas) in the last recession, house prices actually went up - And by quite a bit.
Though they took a hit afterwards and didn't go anywhere much in a hurry for a good while then.
Not saying that WILL repeat - But certainly allowing for the possibility it could.
Maybe they are. Maybe they aren't. (And neither here nor there to me.)
But with you being what you are, I'd surely not take it as Gospel on your say so.
In fact, with you being what you are, I'd definitely want to hear it confirmed from numerous potentially less biased sources before I actually give the comment any credence at all.
A Professional Demographer to an amateur demographer:"negative natural increase will never outweigh the positive net migration"
One of the narratives I've noticed from property bulls on this forum over the last couple of years is the idea that the RBA still has "plenty of firepower left" i.e. will be able to cut rates, buy currency, bonds, do whatever it takes to keep property prices rising at current levels, so enjoy the ride and house prices to the moon etc etc.
As a counter-argument I've been suggesting that this firepower is non-existant - that only big currencies like the euro and the us dollar have the financial gravitas to make these kinds of manipulations. My argument runs more along the lines that the aussie dollar is at it's core still the pacific peso, and as bigger western nations begin their fiscal tightening cycle we will see a massive wave of capital flight that will sink our dollar into the 50's, force up yields on bonds and ultimately mortgage interest rates, precipitating a housing crash of epic proportions.
Well behold, we now have dramatic evidence that this process is beginning in earnest:
Maybe they are. Maybe they aren't. (And neither here nor there to me.)
But with you being what you are, I'd surely not take it as Gospel on your say so.
In fact, with you being what you are, I'd definitely want to hear it confirmed from numerous potentially less biased sources before I actually give the comment any credence at all.
LOL Don't you cut a fine figure up there on your high horse! Self-important twat.
peter fraser
25 Sep 2015, 10:18 PM
Foreigners buying our government bonds doesn't affect the housing market John.
Is that so ....
So, if 1, foreigners start selling bonds 2, the RBA will begin buying bonds? Our own form of QE?
So foreigners that sell bonds will also sell the proceeds (AUD) and buy foreign currencies, pushing the dollar down, maybe as low as 50c. I would have thought that would have a dire effect on disposable incomes in NSW and VIC, but what do I know, I'm not a mortgage broker.
There is also the small matter of the stock market, 30% of which is foreign owned. If that drops 30-50%, I'd imagine that would have some effect on the super balances of those about to retire. Might be time to sell all equities and buy houses in your super fund.
Quote:
The RBA still has firepower.
The RBA has infinite firepower in AUD. So did the central bank of Zimbabwe. The question is, what will using that firepower actually do? Hit a growth target, or their own foot?
So, if 1, foreigners start selling bonds 2, the RBA will begin buying bonds? Our own form of QE?
So foreigners that sell bonds will also sell the proceeds (AUD) and buy foreign currencies, pushing the dollar down, maybe as low as 50c. I would have thought that would have a dire effect on disposable incomes in NSW and VIC, but what do I know, I'm not a mortgage broker.target, or their own foot?
Exactly, what would you know.
A falling AUD does push up the cost of imported goods but it creates jobs here.
Quote:
There is also the small matter of the stock market, 30% of which is foreign owned. If that drops 30-50%, I'd imagine that would have some effect on the super balances of those about to retire. Might be time to sell all equities and buy houses in your super fund.
Not my problem or yours.
Quote:
The RBA has infinite firepower in AUD. So did the central bank of Zimbabwe. The question is, what will using that firepower actually do? Hit a growth
Did you deliberately confuse money printing with interest rate adjustments, or are you are confused about the issue in your haste to impress yourself with your own clever wit.
Any expressed market opinion is my own and is not to be taken as financial advice
What was the Australian dollar at the last time interest rates were cut Peter?
The RBA actually began an interest rate cut series on 7 February 2001 when the Australian dollar was US 55cents, far below its current level and followed it with five more cuts. They were not deterred then by loony internet calls that they had no fire power.
Loki's allusion to foreign selling of gov bonds is not supported by John's opening article which specifically states that foreigners are not selling, and anyway surplus AUD (with effect on ex rates) could only arise from such a process if the sellers could sell back to the RBA/Treasury - which they cannot do. Foreigners selling their bonds on the secondary market makes no difference to the supply and demand for AUD regardless of residency of the participants.
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