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Prepare for an Australian house price plateau
Topic Started: 5 Dec 2013, 09:42 AM (5,182 Views)
Dr Watson
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Count du Monet
5 Dec 2013, 10:45 AM
Actually lowering rates doesn't create more capital, it tends to reduce it. Higher rates attract more capital from domestic savers and foreign investors. This the enormous risk of running emergency low rates for too long. There will be consequences! There ain't no free lunch unless you steal it.

The purpose of low rates is to drive the suckers onto the open markets looking for yield.
If the RBA lowers rates, won't that result in borrowers taking out larger loans, thus creating bigger deposits?
The trouble with the world is that the stupid are cocksure and the intelligent are full of doubt — Bertrand Russell
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peter fraser
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Count du Monet
5 Dec 2013, 10:45 AM
Dr Watson
5 Dec 2013, 10:40 AM
Very true. Unless the RBA delivers more cuts or the Government borrows to pay for biggish housing grants. Both would be scraping the bottom of the barrel and reek of desperation.
Actually lowering rates doesn't create more capital, it tends to reduce it. Higher rates attract more capital from domestic savers and foreign investors. This the enormous risk of running emergency low rates for too long. There will be consequences! There ain't no free lunch unless you steal it.

The purpose of low rates is to drive the suckers onto the open markets looking for yield.
Capital creates itself in the loan process. they almost can't run out.
Any expressed market opinion is my own and is not to be taken as financial advice
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Count du Monet
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Dr Watson
5 Dec 2013, 10:50 AM
If the RBA lowers rates, won't that result in borrowers taking out larger loans, thus creating bigger deposits?
No, because there is only a certain quantity of money for lending. For every dollar that a bank lends, a dollar has to have supplied from somewhere else. Yes, there is no limit to borrowers, but whether the borrowers are good risk/return is a different question. But there is a limit to the funds available for lending.

There are loans that get knocked back and the loans go to the better risk/return.

In general lower rates will mean less loans than otherwise would have been the case.
The next trick of our glorious banks will be to charge us a fee for using net bank!!!
You are no longer customer, you are property!!!

Don't be SAUCY with me Bernaisse
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Pig Iron
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Bogan scum

Count du Monet
5 Dec 2013, 01:41 PM
No, because there is only a certain quantity of money for lending. For every dollar that a bank lends, a dollar has to have supplied from somewhere else. Yes, there is no limit to borrowers, but whether the borrowers are good risk/return is a different question. But there is a limit to the funds available for lending.

There are loans that get knocked back and the loans go to the better risk/return.

In general lower rates will mean less loans than otherwise would have been the case.
how many times does this need to be explained to you before you'll actually understand you are wrong?
I am the love child of Tony Abbott and Pauline Hanson
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Dr Watson
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Count du Monet
5 Dec 2013, 01:41 PM
No, because there is only a certain quantity of money for lending.
Doesn't that quantity increase each time a new loan (and therefore a new deposit) is issued? Would you accept that a loan also creates a deposit?
Edited by Dr Watson, 5 Dec 2013, 01:50 PM.
The trouble with the world is that the stupid are cocksure and the intelligent are full of doubt — Bertrand Russell
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John F. Kennedy
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Investors should seek to find out if senior RBA staff have recently liquidated their property portfolios and, if they have, take that as their cue to also bail out before rates begin to rise in the new year. Good story for an enterprising young journalist. Time to sell is now!
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Count du Monet
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Dr Watson
5 Dec 2013, 01:49 PM
Doesn't that quantity increase each time a new loan (and therefore a new deposit) is issued? Would you accept that a loan also creates a deposit?
No, a bank is in fact strictly forbidden by law against creating unfunded liabilities.

Banks traditionally gained their funds from depositors. If a bank has no deposits it has nothing to lend, you cannot borrow money from it. If somebody puts in $50 the bank has an excess reserve of $50 and they can lend that to you. Then they are back to zero and can make no more loans.

One dollar goes in, one dollar comes out. Pure logic, to think otherwise is to be retarded.
The next trick of our glorious banks will be to charge us a fee for using net bank!!!
You are no longer customer, you are property!!!

Don't be SAUCY with me Bernaisse
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Pig Iron
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Bogan scum

John F. Kennedy
5 Dec 2013, 03:03 PM
Investors should seek to find out if senior RBA staff have recently liquidated their property portfolios and, if they have, take that as their cue to also bail out before rates begin to rise in the new year. Good story for an enterprising young journalist. Time to sell is now!
terrible advice.
I am the love child of Tony Abbott and Pauline Hanson
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Dr Watson
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Count du Monet
5 Dec 2013, 03:21 PM
No, a bank is in fact strictly forbidden by law against creating unfunded liabilities.
Would you accept that a loan also creates a deposit?
The trouble with the world is that the stupid are cocksure and the intelligent are full of doubt — Bertrand Russell
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Strindberg
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Count du Monet
5 Dec 2013, 01:41 PM
No, because there is only a certain quantity of money for lending. For every dollar that a bank lends, a dollar has to have supplied from somewhere else. Yes, there is no limit to borrowers, but whether the borrowers are good risk/return is a different question. But there is a limit to the funds available for lending.
There's a genuine issue here which the current "loans create deposits" mantra fails to address.
I'm with Wulfie on this.

Begin with a closed system of 3 banks and 6 customers.

Abe has $100 on deposit with bank A
Bill has $100 on deposit with bank B
Carrie has $100 on deposit with bank C

Debbie has a $100 loan from bank A
Ellie has a $100 loan from bank B
Fred has a $100 loan from bank C

Banks A, B and C each have CB stipulated $10 of reserves with the CB (therefore each bank has $110 assets and $100 liability). They have equity and are solvent.

Greta wants a $100 loan. Where does she get it from? Neither bank A, nor bank B, nor bank C are in any position to give Greta a loan. If any of them write a $100 loan for Greta they will be totally unable to meet the obligations arising from that loan if that loan money is spent with customers of any other bank.

To go beyond the closed system you might say that the bank can borrow the $100 from elsewhere. That is to support Wulfie's statement that dollars have to be supplied from somewhere else. But the Aussie banking system is a closed system centred around CB reserves out of which all obligations arising from loans are met. Interest rates are irrelevant. There is no excess money in the above system which can be obtained to meet obligations arising from loan issuance.
Housing costs to Income broadly unchanged since 1994 - re-ratified here
The People of Australia have the highest median wealth in the World
2002-2012 10 year house price growth the SLOWEST since 1952-1962
"There are two kinds of people in this world: ones that fiddle around wondering whether a thing's right or wrong and guys like us." (Hugo to Gagin in Ride the Pink Horse)
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