Because they are heavily regulated and must constantly report to the regulatory authority as well as the market, and the problem in the USA was that banks would no longer trust each other to pay for the day to day inter-bank operations, so lending to another bank was out of the question. Banks themselves no longer knew what their loan books would be worth in just a few months time, and those loan books are part of their tier requirements. In a bank run where asset values fall (loans go underwater) the future is more closely related to the laws of chaos than normal banking.
Banks have to maintain a complex set of ratios otherwise they become insolvent as far as the regulator is concerned, and then it's all over unless the government or a very wealthy investor can step in. You might recall that Warren Buffet rescued GE in the USA - at the time they were the largest financier in the world but they weren't a bank and couldn't access Fed funding.
So banks can and do create money... under certain guide lines and limits.......
There are some people who seem angry and continuously look for conflict. Walk away, the battle they are fighting isn't with you, it's with themselves.
The first lesson of economics is scarcity: There is not enough of anything to satisfy all who want it. The first lesson of politics is to disregard the first lesson of economics. ~ Thomas Sowell.
Who was the fool, who the wise man, who the beggar or the Emperor? Whether rich or poor, all are equal in death.
Are you saying that it's easier to explain things after they happen than predict things before they happen? If so, you are correct. But just because something is difficult shouldn't mean you don't try.
Like frog hop from stone to stone, learn about descriptive of past event is land on first stone.
It can move to next stone to get deeper the narrative.
Or it could stay on a stone.
And understand a behavior around a stone.
And understand why it could not see why it can simply see today and why mouse, master and a expert behave way it do.
And it might learn about a future gaze by understand psychology and a behave.
And see into unknown through a prism of societal the structure.
So banks can and do create money... under certain guide lines and limits.......
Banks create bank credits which are interchangeable with money in normal times, but not necessarily interchangeable in abnormal times.
That is right now you will be just as happy with a dollar in an account with the CBA as you would be with a dollar in your pocket, but in a bank run you want that dollar in your pocket.
Any expressed market opinion is my own and is not to be taken as financial advice
I think he is suggesting that if the housing bubble burst in Australia we would look back at the current set of circumstances and explain it clearly. Well they had a high run up in prices with a mining boom. Prices didn't fall much after the GFC. China imploded. Commodity prices collapsed. High immigration rates fell away. Dollar collapsed. First recession in 22 years took everyone by surprise. Something like that.
You forgot- Its not different here after all........
Mindless governments here and around the world have tried to push money into housing instead of the economy for way to long, why ,because they knew the economy was finished and they had to try something. All experiments have failed, you have complete disreguard for economic law, what do you expect. My oldies never got any first home buyers grant and either did I , they never got a free plasma and playstation for having a kid, and either did I.
THE MORE WAGES DIRECTED TOWARDS HOUSING MEANS THE MORE MONEY DIRECTED AWAY FROM THE ECONOMY.
PRICES TO THE MOON RIGHT
ITS not different here , we have followed the same mindless strategies from the US as has everybody else.
the US is not improving ,in 2008 , they owed about 10 trillion, now its about 17 trillion and rising. And now we owe more than them as a percentage of our gdp ,so ours is now rising faster than theirs. The euro is now collapsing after they spriuked the euro problems were solved, and now our mining boom here is over we have nothing left either but rising debt and no jobs to pay for it.
Dont you people get it, why do you think interestss rates are now lower than the emergency levels we saw a few years back, because the government is now so desperate its firing off the only weapon is has left, and like evrywhere else , its not doing much. the charade has finally caught up with everyone, you cannot polish a turd , no matter how much polish you throw at it.
So banks can and do create money... under certain guide lines and limits.......
Banks create bank credits which are interchangeable with money in normal times, but not necessarily interchangeable in abnormal times.
That is right now you will be just as happy with a dollar in an account with the CBA as you would be with a dollar in your pocket, but in a bank run you want that dollar in your pocket.
This is why the government has been so desperate to keep the housing market afloat. When property collapses the money will just dissapear and people wont be able to withdraw their money from the bank because there wont be enough. if the banks used 1 million of depositors money to loan somebody for a house with one of their brilliant 100% homeloans, and this property drops to 500k and the borrower loses there job, the banks sells it for 500k and is then left short 500k. we have about 1.3 trillion owing on aussie homes, sound like greece.
1. Fear of imminent property crash caused FHBs to sit on sidelines for a few years. 2. House prices dipped slightly over those years, then started rising again as low interest rates encouraged investors to re-enter the market. 3. Early tentative price rises were not accompanied by any significant growth in housing credit. 4. Housing finance starts to grow again as investors and FHBs re-enter in greater numbers as rising prices wake them up to the reality that the touted crash was a fantasy. 5. Three years worth of pent-up FHB demand suddenly floods the market, causing double digit house annual house price rises. 6. FHBs and investors start to compete aggressively with each other to get in before prices rise any further. Fear and greed take over. House Prices BOOM!
Why stop at phase 6? Phase 7 is what the bears bang on about. It's what happens when prices rise so high on the back of 'fear' and 'greed' that they are no longer based on true value. Hyman Minsky had a name for it but I dare not utter it with all these bulls around (rhymes with Fonzi [ayeeeee!!]).
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When FHB numbers are low, the potential FHBs don't just vanish from the face of the earth. They are still living in Australia, still waiting to buy.
Removal of grants combined with fear of a crash simply deferred their purchase to a later date, it didn't prevent them them [sic] from purchasing forever.
Couldn't it be that scaling back FHB grants pulled their activity FORWARD rather than pushed it back? Why would you put off a purchase if you already missed the grants? There's never been any talk of them coming back in the future..
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Now interest rates have fallen, rents keep on rising, prices are rising again, fear of a crash has subsided, and the potential FHBs have an extra few years of saving behind them.
Rent's are easing in Perth, but I can't speak for the rest of the country.
Human beings go mad in crowds.. and come to their senses slowly and individually..
Why stop at phase 6? Phase 7 is what the bears bang on about. It's what happens when prices rise so high on the back of 'fear' and 'greed' that they are no longer based on true value. Hyman Minsky had a name for it but I dare not utter it with all these bulls around (rhymes with Fonzi [ayeeeee!!]).
Sure, if prices rise too far, too fast, then a bubble may develop. This happened in Ireland where prices quadrupled over ten years.
But we're quite a few years away from that here, and there is still plenty of profit to be made in the meantime.
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Why would you put off a purchase if you already missed the grants?
As well as removal of the grants, potential FHBs have deferred their purchase due to the scare campaigns being run by the likes of MacroBusiness and 'Don't Buy Now!' David Collyer and Steve Keen types. But by now those potential FHBs will be starting to realise that the 'imminent crash' promised for the past few years has failed to eventuate, and in fact prices are rising again. And by now they'll have saved up the grant amount (and more) by themselves. And they have the opportunity to buy with fixed rates under 5%.
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Rent's are easing in Perth, but I can't speak for the rest of the country.
The ABS CPI rents index shows rents continuing to rise at a national level. I haven't looked into individual cities recently but I'm sure some are probably performing better than others.
the US is not improving ,in 2008 , they owed about 10 trillion, now its about 17 trillion and rising. And now we owe more than them as a percentage of our gdp ,so ours is now rising faster than theirs. The euro is now collapsing after they spriuked the euro problems were solved, and now our mining boom here is over we have nothing left either but rising debt and no jobs to pay for it.
The best case scenario for the Australian economy is a dour struggle against the headwinds of falling mining investment. Growth based upon net exports will still see unemployment slowly climb even if successful.
Moreover, chronically slow growth leaves the Australian economy vulnerable to new shocks that appear probable.
Investors should remain cautious on stocks or property exposed to domestic demand, especially in the former high-flying mining states, despite the dollar and interest rates facing considerable further falls.
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