I'm sorry b_b but your explanation of foreign money exchange makes no sense to me. The reason I see that there is a shortage of deposits compared to debts in Australian banks is because Australia has been running current account deficits for so long. As a result the banks are borrowing the money from O/S to make up the shortfall and balance their books.
I also don't see what you mean by the "foreign money is converted into already existing Aus dollars".
Of course, Australia does have some big advantages over the Ireland of 2006. Australia has the ability to print its own currency and set its own interest rates (just ask the Irish how much they would like this power right now). Secondly, despite the massive expansion in credit and house prices that Australia has experienced over the last two decades, Ireland’s was comparatively greater.
Not according to 'Raveswei Theory'.
According to my theory these are not big advantages.
US had all these "big advantages" and what happened? was it much different than in Ireland?
You cannot compare the US & Ireland.
US Subprime crash which brought down the US economy was primarily caused by high oil prices, bad regulations and lax lending policies. High oil prices was just the trigger which pushed many low income familes who had a subprime mortgage over the edge. As oil prices increased the subprime sector of the US housing market started to see rising defaults, this is what brought subprime to the attention of the media. This all started in the years lending up to the GFC.
Irelands trouble was mostly caused by a financial crisis in banking. Note the US did not crash due to a financial crash, that was the result not the cause. Irelands crisis was caused by the US financial crisis spreading to Euro banks. Ireland rode the financial degrulation, low corporate tax rate which lead to it being the "tiger economy" of europe. As Irish banks went under, so did the Irish economy and the jobs with it. The Irish housing market was a result, not a cause. Big difference.
To compare the 2 systems, well look how the US economy is now seem be growing, showing solid employment growth, increasing exports and manufactoring sectors unlike Australia. In fact at present US quarterly GDP growth is faster then Australias, and we have China to ride on, the US does not. Europe on the other hand is mostly in recession and looks to stay their for awhile. If I had to pick a place to live and build a future it would be the US, certainly not Europe.
So yes it was very different to Ireland, the results are plain to see today. The US having its own currency, interest rates and ability to print money when needed has lead to a clear advantage to the US.
I'm sorry b_b but your explanation of foreign money exchange makes no sense to me. The reason I see that there is a shortage of deposits compared to debts in Australian banks is because Australia has been running current account deficits for so long. As a result the banks are borrowing the money from O/S to make up the shortfall and balance their books.
I also don't see what you mean by the "foreign money is converted into already existing Aus dollars".
That is not how the monetary system operates.
When we run a current account deficit it means locals are giving up existing deposits for something in exchange.
I will use a trade deficit as an example.
Assume an Australia citizen wishes to acquire a Japanese made Honda. Since the Honda is made by Japanese workers, the workers require yen for wages. So the Australian has to acquire yen so as to buy the bike. They do this in the FX market. If Australia does not conduct any other trade for the period we will record a trade deficit / current account deficit = to one Honda.
But when the Australian citizen acquired the Yen in the FX market, who sold it to him, and what did they get in return?
The person who sold them the yen acquired AUD. The AUD ends up in the Australian banking system. In fact it has never left the Banking system.
Now the national accounts will record this as a current account deficit, and Banks will characterise this "re-classified" deposit as foreign owned. But the fact is, the Bank never "funded" the transaction, nor did they fund the current account deficit. It was simply a swap of a local deposit for a foreign good.
Banks are simply innocent bystanders to foreign transactions their customers initiate.
BTW. House price fall accelerated after AUD fall in 2008. Australian house prices resumed growth only after AUD started quick growth after the fall.
Aussie prices resumed growth in the year following the fall in the AUD - just like 2001.
You're right, in 2008 the $AUD fell to $0.60 USD and borrowing rates fell to the low 5% area. The boost to housing was almost immediate, like turning on a tap, although the index didn't show that for some months.
I do consider that the response was more a result of the lower interest rates than the lower $AUD. I also think that the lower rates were in response to the fear of what the GFC may bring rather than the sudden fall in the $AUD, however I'm happy to hear any argument to the contrary.
You're right, in 2008 the $AUD fell to $0.60 USD and borrowing rates fell to the low 5% area. The boost to housing was almost immediate, like turning on a tap, although the index didn't show that for some months.
I do consider that the response was more a result of the lower interest rates than the lower $AUD. I also think that the lower rates were in response to the fear of what the GFC may bring rather than the sudden fall in the $AUD, however I'm happy to hear any argument to the contrary.
Happened in 2001 too.
Conversely, the rising AUD has corresponded with falling house prices in recent times.
Housing Bears who are willing a lower AUD are going to get the shock of their lives.
Conversely, the rising AUD has corresponded with falling house prices in recent times.
Housing Bears who are willing a lower AUD are going to get the shock of their lives.
Catweasel say if a nutbar theory the really, it should a witness similar phenomenon in a NZ considering a NZD track a AUD against major currency like a AUD. Perhaps it can do a see, who the know? Amongst the beigeists, the chins should be stroked.
Catweasel say if a nutbar theory the really, it should a witness similar phenomenon in a NZ considering a NZD track a AUD against major currency like a AUD. Perhaps it can do a see, who the know? Amongst the beigeists, the chins should be stroked.
Catweasel say not a sure that a NZ had any of the "free money", but it definitely was part of a credit orgy. Its Australian bank masters make 100% sure of a that. Its masters did a equally well in a rural sector too, making every the farmer overnight miliioinaires.
When we run a current account deficit it means locals are giving up existing deposits for something in exchange.
I will use a trade deficit as an example.
Assume an Australia citizen wishes to acquire a Japanese made Honda. Since the Honda is made by Japanese workers, the workers require yen for wages. So the Australian has to acquire yen so as to buy the bike. They do this in the FX market. If Australia does not conduct any other trade for the period we will record a trade deficit / current account deficit = to one Honda.
But when the Australian citizen acquired the Yen in the FX market, who sold it to him, and what did they get in return?
The person who sold them the yen acquired AUD. The AUD ends up in the Australian banking system. In fact it has never left the Banking system.
Now the national accounts will record this as a current account deficit, and Banks will characterise this "re-classified" deposit as foreign owned. But the fact is, the Bank never "funded" the transaction, nor did they fund the current account deficit. It was simply a swap of a local deposit for a foreign good.
Banks are simply innocent bystanders to foreign transactions their customers initiate.
Sorry b_b that doesn't make sense.
So what happens to the yen in this example. Does the the yen just end up back in the Japanese banking system as well so that we get a net doubling of the total money?
Surely, the money disappears from the Australian account gets transferred into the Japanese account at the relevant exchange rate resulting in no net loss/gain of money.
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