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Why Australia can't avoid a recession; (& Canada, Korea, China and others)
Topic Started: 12 Dec 2016, 11:25 PM (8,495 Views)
Jon Snow
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Rufus
14 Dec 2016, 08:10 PM
Banks can't borrow as much as they want, they become insolvent when the shareholder equity has disappeared.

WTF are you talking about? How does borrowing from the RBA make shareholder equity "disappear"?
Quote:
 
Wages are not falling, and I think you know that.

In simple steps:
Y = C + I + G + (X − M)

C = f(Wages + Credit)

Wage share of GDP
Posted Image

Credit Share of GDP
Posted Image

Credit Growth
Posted Image


Speak when you are angry and you will make the best speech you will ever regret.
Ambrose Bierce
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Rufus
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Jon Snow
14 Dec 2016, 08:22 PM
WTF are you talking about? How does borrowing from the RBA make shareholder equity "disappear"?


Banks can't borrow unlimited funds from the RBA. Once their shareholder equity runs out, so does their ability to borrow and the bank gets nationalised, or if the government prefers it gets recapitalised probably with some government ownership. Governments actually don't want to be bankers.
Quote:
 

In simple steps:
Y = C + I + G + (X − M)

C = f(Wages + Credit)

Wage share of GDP
Posted Image

Credit Share of GDP
Posted Image

Credit Growth
Posted Image


You can post all the charts you like, wages are rising albeit at a slower pace than in previous eras.
Take risks - if you win you will become wealthy, if you lose you will become wise
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Sydneyite
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Jon Snow
14 Dec 2016, 07:53 PM
This, despite the fact that the banks can borrow as much as they want from the RBA, and the RBA can set overnight rates (and by extension, interbank rates) as low as it wants. How can there be a liquidity crisis when there is an unlimited line of credit in the overnight market?

An entity with an unlimited line of credit can never be illiquid.
As Rufus explained - it doesn't work that way.

If every depositor turns up and cashes out (or tries to) their bank account, the banks capital reserves are exhausted very quickly - you can't borrow on the overnight cash market with no collateral! And you can also only borrow to the extent that you have collateral in the first place. Remember to be solvent a bank must maintain the regulator specified capital reserve - fall below the minimum requirement and you cannot trade any more - certainly cannot borrow on the overnight cash market!

Likewise, if every wholesale creditor of the banks turned up and called in their loans, banks capital, gone, very fast = can't borrow as no collateral = insolvent.
Edited by Sydneyite, 14 Dec 2016, 09:06 PM.
For Aussie property bears, "denial", is not just a long river in North Africa.....
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Jon Snow
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Sydneyite
14 Dec 2016, 09:04 PM
If every depositor turns up and cashes out (or tries to) their bank account, the banks capital reserves are exhausted very quickly - you can't borrow on the overnight cash market with no collateral! And you can also only borrow to the extent that you have collateral in the first place.

Deposits are owned by the depositors, not the bank !!!! Deposits are liabilities to the bank! How can a deposit be used as collateral?

If every depositor cashed out the bank could write them a cheque, which they could only deposit in another bank (B). Then bank B has a deposit in bank A. The deposit changes ownership from bank A's perspective, but otherwise nothing changes.

The deposit would never leave the banking system. The bank could continue to borrow from the RBA against their ASSETS i.e. loans.

Quote:
 
Remember to be solvent a bank must maintain the regulator specified capital reserve - fall below the minimum requirement and you cannot trade any more - certainly cannot borrow on the overnight cash market!
Regulatory capital is for solvency, not liquidity. Liquidity issues are solved by borrowing. Central banks can lower the overnight cash rate and lend to cover any liquidity problems. Solvency issues do not arise from "bank runs", because in the modern banking system there can be no such thing. Solvency issues arise from impairment of ASSETS, not liabilities. i.e. when the BANK'S borrowers stop paying their mortgage.

Quote:
 
Likewise, if every wholesale creditor of the banks turned up and called in their loans, banks capital, gone, very fast = can't borrow as no collateral = insolvent.
That's what contracts are for. If wholesale creditors raise rates, it gets passed on to the bank's borrowers.

Rufus
14 Dec 2016, 08:39 PM
You can post all the charts you like, wages are rising albeit at a slower pace than in previous eras.
I can post all the charts I like to make it as simple as possible, and still you don't understand. Or maybe you do, and are just being dishonest.
Edited by Jon Snow, 14 Dec 2016, 10:03 PM.
Speak when you are angry and you will make the best speech you will ever regret.
Ambrose Bierce
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Sydneyite
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Jon Snow
14 Dec 2016, 10:01 PM
Deposits are owned by the depositors, not the bank !!!! Deposits are liabilities to the bank! How can a deposit be used as collateral?
You are mis-understanding - It's not the deposits that are used as collateral for cash market loans, it's the banks capital reserves.

Quote:
 
If every depositor cashed out the bank could write them a cheque, which they could only deposit in another bank (B). Then bank B has a deposit in bank A. The deposit changes ownership from bank A's perspective, but otherwise nothing changes.
Wrong - Bank A still has to fund the settlement of all those cheque amounts with bank B using real (ESA) money. If the net ESA outflows from Bank A are greater than bank As ability to fund them on that day (including having enough capital / collateral to borrow any short-fall from the overnight cash market), then they will not be able to meet their net ESA settlement requirements for that day - and they would be insolvent and have to be rescued somehow. There are special things the central bank may try to do if they are convinced it's only a short term liquidity issue and not something bigger - but in this case there would be no dice. The bank would have had to freeze deposit withdrawals at a certain point as a first step anyway, and then started to try and call-in loans (where it can - eg unregulated / business loans etc) in order to raise more capital quickly - a deposit run on a bank is absolutely a big, big problem.

Quote:
 
The deposit would never leave the banking system. The bank could continue to borrow from the RBA against their ASSETS i.e. loans.
I don't believe loans can be used as collateral in overnight cash market repo agreements - usually the collateral has to be government bonds and their like. Remember the banks capital ratio requirements are based on the size of their loan book - there's a reason for that!
Edited by Sydneyite, 15 Dec 2016, 12:49 PM.
For Aussie property bears, "denial", is not just a long river in North Africa.....
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skamy
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Simon_S
14 Dec 2016, 01:11 PM
We have been through this before Skummy....

Credit Suisse;Illusory household saving





WOW really 2%.........




-3.6%

Savings.........What Savings........

AHAHAHAHAHHAHAHAHAHAHAH

Credit Suisse is notorious for its appallingly inaccurate Australian economic reporting - I believe that the net savings quoted in this article are from DISPOSABLE INCOME and do NOT include super. Yet again Credit Suisse stuffs up.
Quote:
 
Australia Household Saving Ratio Notes
In Australia, Households Savings correspond to the ratio of household income saved to household net disposable income during a certain period of time. http://www.tradingeconomics.com/australia/personal-savings


Posted Image

Check it out here from march 2016

http://www.smh.com.au/money/the-average-australians-savings-how-do-you-compare-20160317-gnlkq8.html
Quote:
 
The average Australian is putting $427 under their mattress each month, according to a recent survey by Suncorp.
The good news is that Australians are saving more now than at any point since the 1980s.



You are incapable of analysis you just believe any old codswallop if it suits your negative world view. I love it when you post your codswallop in red and large text - you must feel a right eejit now that you have been shown to be wrong.
Chris
14 Dec 2016, 07:06 PM
No matter how much you pay it will never compare to how much you leached out through subsidies prior to the asset becoming neutral or positive.

Besides if you have a significant income from property and you are not taking advantage of tax minimisation tools you would have to be the first investor in the world, or the most generous?
Who are you to moralise about which tax incentives are good and which are evil.

Use your brain and take advantage of the things that are available to you - they may not be there forever.

When the government no longer needs regular Australians to help provide rentals - incentives will go - nothing surer.

You only got one choice join in or miss out - you get no brownie points for sacrificing your own financial future for the doomster fire and brimstone preachermen.

Most of them are investors lining their own nests while selling dodgy investments to silly young people.
Jon Snow
14 Dec 2016, 07:53 PM
Which recession, and did you see it in every part in Australia, or was it down the road you saw a house sell for more?



This, despite the fact that the banks can borrow as much as they want from the RBA, and the RBA can set overnight rates (and by extension, interbank rates) as low as it wants. How can there be a liquidity crisis when there is an unlimited line of credit in the overnight market?

An entity with an unlimited line of credit can never be illiquid.


Rubbish. How does private debt rise indefinitely when wages are falling?

Oh it's nonsense is it?

Which part do you disagree with?
- That money is created endogenously by banks?
- That wages share of GDP is in decline?
- That credit growth has started to slow?
Slow wages growth is a problem, but that won't last for long as the economy continues to recover from the GFC. Already construction wages are heading upwards and as retail etc. recovers and staff shortages emerge wages will improve again.

I know all about the banks and their agendas during boom times and bust. You are the one who does not understand. We have been telling you for years that the GFC created an asset buying opportunity and you just ignored everyone. Once banks ease lending and we get back to 95% mortgages (and it will happen) credit growth will explode. This will be the third time in my life I have watched this play out. It will play out the same way because it always plays out to benefit the super rich ALWAYS. You are a fool to believe otherwise.

The MSM agenda during a bust is to create negativity and destroy confidence, this allows rich people to multiply their portfolio of assets and this is exactly what happened. Why did you support this agenda right through the GFC?

Maybe next time around you will join me trying to persuade young people not to listen to this crap and get on with buying their homes in a timely fashion.
Edited by skamy, 15 Dec 2016, 01:10 AM.
Definition of a doom and gloomer from 1993
The last camp is made up of the doom-and-gloomers. Their slogan is "it's the end of the world as we know it". Right now they are convinced that debt is the evil responsible for all our economic woes and must be eliminated at all cost. Many doom-and-gloomers believe that unprecedented debt levels mean that we are on the precipice of a worse crisis than the Great Depression. The doom-and-gloomers hang on the latest series of negative economic data.
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Foxy
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Zero is coming...

skamy
15 Dec 2016, 12:53 AM
Credit Suisse is notorious for its appallingly inaccurate Australian economic reporting - I believe that the net savings quoted in this article are from DISPOSABLE INCOME and do NOT include super. Yet again Credit Suisse stuffs up.



Posted Image

Check it out here from march 2016

http://www.smh.com.au/money/the-average-australians-savings-how-do-you-compare-20160317-gnlkq8.html




You are incapable of analysis you just believe any old codswallop if it suits your negative world view. I love it when you post your codswallop in red and large text - you must feel a right eejit now that you have been shown to be wrong.

Who are you to moralise about which tax incentives are good and which are evil.

Use your brain and take advantage of the things that are available to you - they may not be there forever.

When the government no longer needs regular Australians to help provide rentals - incentives will go - nothing surer.

You only got one choice join in or miss out - you get no brownie points for sacrificing your own financial future for the doomster fire and brimstone preachermen.

Most of them are investors lining their own nests while selling dodgy investments to silly young people.

Slow wages growth is a problem, but that won't last for long as the economy continues to recover from the GFC. Already construction wages are heading upwards and as retail etc. recovers and staff shortages emerge wages will improve again.

I know all about the banks and their agendas during boom times and bust. You are the one who does not understand. We have been telling you for years that the GFC created an asset buying opportunity and you just ignored everyone. Once banks ease lending and we get back to 95% mortgages (and it will happen) credit growth will explode. This will be the third time in my life I have watched this play out. It will play out the same way because it always plays out to benefit the super rich ALWAYS. You are a fool to believe otherwise.

The MSM agenda during a bust is to create negativity and destroy confidence, this allows rich people to multiply their portfolio of assets and this is exactly what happened. Why did you support this agenda right through the GFC?

Maybe next time around you will join me trying to persuade young people not to listen to this crap and get on with buying their homes in a timely fashion.
I have got debt, and i don't like it.


http://www.afr.com/content/dam/images/g/n/2/1/u/8/image.imgtype.afrArticleInline.620x0.png/1456285515560.png
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skamy
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foxbat
15 Dec 2016, 01:22 AM
I have got debt, and i don't like it.

You are getting on a bit so maybe it is good to reduce your debt if you are fearful. However, history has shown that the tail end of a downturn is a great time to borrow to invest.

Just stay away from the fear based stuff like gold - it is about to take a hammering.
Definition of a doom and gloomer from 1993
The last camp is made up of the doom-and-gloomers. Their slogan is "it's the end of the world as we know it". Right now they are convinced that debt is the evil responsible for all our economic woes and must be eliminated at all cost. Many doom-and-gloomers believe that unprecedented debt levels mean that we are on the precipice of a worse crisis than the Great Depression. The doom-and-gloomers hang on the latest series of negative economic data.
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Jimbo
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Jon Snow
14 Dec 2016, 10:01 PM
Deposits are owned by the depositors, not the bank
On a tangent to the thread, but a bank deposit is not strictly owned by the depositor.

The depositor simply becomes a creditor to the bank when they loan them their money.

Example: If I rent a machine to a factory, I still own the machine. It cannot be considered as an asset or property for seizure in the event of the bankruptcy of the company I hired the machine to.

However, if a bank is wound up, it may have used the deposits placed in it leaving nothing in the till.

Hence the Government offering guarantees (for what they would be worth if such an event took place with a major Australian or regional bank).

If you have a bit of spare wedge, convert it into something condensed which you can keep in your sole possession.

Edited by Jimbo, 15 Dec 2016, 05:34 AM.
Matthew, 30 Jan 2016, 09:21 AM Your simplistic view is so flawed it is not worth debating. The current oversupply will be swallowed in 12 months. By the time dumb shits like you realise this prices will already be :?: rising.
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Simon_S
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skamy
15 Dec 2016, 12:53 AM
Credit Suisse is notorious for its appallingly inaccurate Australian economic reporting - I believe that the net savings quoted in this article are from DISPOSABLE INCOME and do NOT include super. Yet again Credit Suisse stuffs up.
Are they like all the other Doomster Cults like the IMF World Bank OECD RBA US FED and god knows anyone else that doesn't preach booms and rising house prices to the Moon.


Maybe you should read the Report....

Or maybe just read what I posted but here it is again:

Quote:
 

However, we have confirmed with Australian Bureau of Statistics (ABS) officials, that the
official household saving rate does include compulsory saving in the form of
superannuation.
While complusory saving is technically still saving, the issue is that most
people cannot access it until retirement age. So the potential to draw on this saving pool to
consume remains limited. Historically, superannuation contributions have risen from
around 6% of disposable income in the early 1980s, to 8% more recently. Removing
superannuation from the official saving rate, lowers the discretionary saving rate to 2%
from 10%.
T


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