Comments on: Will the Australian Dream Lead Us Into a Debt Crisis?

By: Jason Staggers

Jason Staggers — Fri, 08 Apr 2016 05:30:37 +0000

Definitely a unique time. Just be aware that the danger of leaving cash in the bank is its loss in buying power. If home prices are stagnant for 10 years but between now and then wages and goods/services go up significantly, it’s essentially the same impact on real wealth creation as if home prices came down and wages stayed the same.

If the market is stagnant for 10 years, then putting money in the bank would still be better than buying negatively geared real estate, unless of course interest rates go negative too.

By: Jason Staggers

Jason Staggers — Fri, 08 Apr 2016 05:22:28 +0000

Great points. Thanks Chris.

By: Jason Staggers

Jason Staggers — Fri, 08 Apr 2016 05:20:34 +0000

Good work Bernie. Still plenty of profits to be had through adding value. I’m feeling the Bern!

By: Jason Staggers

Jason Staggers — Fri, 08 Apr 2016 05:16:51 +0000

Not sure where the false logic is. It’s a well-known fact that in a fractional reserve banking system, new money is created when banks lend. Thus, the money supply goes up by the amount of the loan. As loans are repaid, that new money is destroyed and there is less money in circulation, unless new money (new loans) are created to replace the old ones.

No one is saying that everyone pays back their loans immediately. It’s simply a question of whether or not in the broader economy, new loans are being written faster than the old ones are being paid off. Keen’s point is simply that the money supply (new debt creation) can not perpetually grow faster than GDP.

Regarding your comments on inflation, be sure you don’t confuse asset price inflation with consumer and wage price inflation. Absolutely debt growth is tied to growth in property prices. Similarly, the price of goods and services and wages is tied to growth in GDP.

Again, Keen’s point is that income inflation must match debt growth or else the growth in asset prices is unsustainable. Sounds pretty logical to me.

By: Tycoon

Tycoon — Fri, 08 Apr 2016 01:31:15 +0000

This argument is full of the typical flawed thinking of someone who didn’t understand year one economics at Uni and decided to blog. “but when banks take in more money through repayments than they lend out, the money supply shrinks.” this is essentially saying that everyone pays back their loan immediately???? I don’t know where to start. False logic.
The other common thing which is ignored in these arguments is inflation over time. If the average price of a property doubles every 7-10 years then everything staying relatively the same, the average debt should double also. So 20K person in 2004 would become 40-50K in 2015, especially as there have been several peaks in the property cycle during that time.
What was the cost of a can of coke in 2004????

Tyke

By: bernie006@hotmail.com

bernie006@hotmail.com — Fri, 08 Apr 2016 01:17:14 +0000

I too predicted 2008 a crash.
I was wrong and laughed at.i invested in usa instead of australia in 2011.
My friends who bought property in 2008 to2011 in melbourne made lots of money.
I believe it was luck for them because of government intervention by printing money without producing anything.
I will continue to invest because of skills not luck.
Bought development side in melbourne in 2014 and will generate growth of over 40%.

By: Wayne

Wayne — Fri, 08 Apr 2016 01:11:08 +0000

Interest rates have been going down so we are able to borrow more for housing which has driven the price of housing up.If interest rates go up property values will fall.The overbuilding of apartments will cause a fall in their value which will flow onto the value of houses as people see better value in buying apartments.Investors are seeing housing as overvalued and are pulling out of the market.The share market has fallen so it is only a matter of time before the property market falls which is usually what happens.That said Peregian Springs on the Sunshine Coast looks like good value at the moment.

By: Jason Staggers

Jason Staggers — Thu, 07 Apr 2016 23:16:07 +0000

I think your point is undeniable, and Glenn Stevens would agree.

But will another stimulus prop up real estate? It’s anyone’s guess. We’re in uncharted economic waters. Even if interest rates are cut again, which I expect, it appears to me that APRA and the Government will do whatever necessary to keep current house prices flat.

That said, as long as new money is being created, it has to flow somewhere. It will be tough for them to keep it flowing away from real estate. Just look at China.

But I think Keen is onto something. The debt-financed party can’t go on forever. The problem with timing the market is the party has already lasted longer than many economists thought it could.

By: Andrew

Andrew — Thu, 07 Apr 2016 22:55:42 +0000

Isn’t there another big difference between now and 2007 in that the economic situation in China now is not what it was in 2007?

By: Andy

Andy — Thu, 07 Apr 2016 13:26:29 +0000

Tim, Had the markets been allowed to work out their excesses freely in 2007/2008 there would have been considerable lowering of house prices in Australia.

Massive world central bank money printing (debt) produced a stimulus to keep economies from going under … did you predict this would happen in 2007?, if not, your investment skill was luck.

I feel we are in a similar situation now as in 2007 prior to the 2007/2008 financial crisis, only more dangerous, can we rely again on another stimulus from somewhere to prop up property prices …