How about 99% of the work force and retirees that had their super halved in 2007 and havent even made those losses back yet, only to see what's left start to go backwards again this year. Not to mention those that are losing their jobs, the ones that dont make the news. Add to that the cost of everything we import is going to start rising because of the dollar, and interest rates are so low that those that have saved arent earning much from interest. If you want to know what's around the corner, ask someone that was in their 30's in 1987. I was in my 20's and was working in banking and I saw first hand what times like that can do to the rich and not so rich, and back then we actually had a manufacturing industry. This time will be worse IMHO.
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How about 99% of the work force and retirees that had their super halved in 2007 and havent even made those losses back yet, only to see what's left start to go backwards again this year. Not to mention those that are losing their jobs, the ones that dont make the news. Add to that the cost of everything we import is going to start rising because of the dollar, and interest rates are so low that those that have saved arent earning much from interest. If you want to know what's around the corner, ask someone that was in their 30's in 1987. I was in my 20's and was working in banking and I saw first hand what times like that can do to the rich and not so rich, and back then we actually had a manufacturing industry. This time will be worse IMHO.
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Re: The official "ASX is tanking!" panic thread
When jetski and giant exhaust pipes were sold by the thousands, when colleagues with former 6 figures job, high IT knowledge are replaced by dum but cheap visa workers and have to open pizza franchise or greasy chicken palace unless they move overseas, I tend not to have much tear left for the mum and dads, the so called battlers at least not the one shown as "battlers" by your average commercial TV;
When you try to explain that real estate can go down, people are thinking what an idiot and they pile up another property leveraged on a string of previously morgaged to the eyes one: a pyramidal scheme by any other name
Maybe a recession is needed and that could actually help the retirees who do save and even the people with half a brain.
Anyway, I have bet on a fall, and I can only say it is in my $ interest to see a nice collapse..and yes I will put money again in the stock market and yes I have some IP as well...SO let's see how it will go
I do not disagree at all beachlife, all your points are right but when you try to make people understand that the economy is gone, when you work in mining and see for two years jobs collapsing and projects cancelled while on the news everyone was talking mining boom [labour was spending the money which was not there during that time],
When jetski and giant exhaust pipes were sold by the thousands, when colleagues with former 6 figures job, high IT knowledge are replaced by dum but cheap visa workers and have to open pizza franchise or greasy chicken palace unless they move overseas, I tend not to have much tear left for the mum and dads, the so called battlers at least not the one shown as "battlers" by your average commercial TV;
When you try to explain that real estate can go down, people are thinking what an idiot and they pile up another property leveraged on a string of previously morgaged to the eyes one: a pyramidal scheme by any other name
Maybe a recession is needed and that could actually help the retirees who do save and even the people with half a brain.
Anyway, I have bet on a fall, and I can only say it is in my $ interest to see a nice collapse..and yes I will put money again in the stock market and yes I have some IP as well...SO let's see how it will go
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Re: The official "ASX is tanking!" panic thread
I don't believe 99% of the work force's super has halved.
Markets fluctuate, always have and always will. Yes in 2007 - 2008 there was a big crash, But before that there was a big boom. Look at any chart and you will see that their super would have seen big increases before the big falls, and have since seen big increase again, If you level out the fluctuations and include dividends the share market has been a great place to be invested throughout the last 10 years.
When people make big claims about people losing everything, they seem to base there calculations on people going 100% all in just before the crash and then selling out at the bottom, and then not buying back in till the top of the next boom, this is not realistic.
Offcourse, some people do make irrational moves like that and even use leverage, But the bad result they get is just an outcome of their irrational risky bets, not something wrong with the system, the vast majority would have just let their super ride the whole way through.
If you averaged you super contributions into the market for 10years before the crash and continued to do so over the last 6 years, you would be sitting pretty right now.
I don't believe 99% of the work force's super has halved.
Markets fluctuate, always have and always will. Yes in 2007 - 2008 there was a big crash, But before that there was a big boom. Look at any chart and you will see that their super would have seen big increases before the big falls, and have since seen big increase again, If you level out the fluctuations and include dividends the share market has been a great place to be invested throughout the last 10 years.
When people make big claims about people losing everything, they seem to base there calculations on people going 100% all in just before the crash and then selling out at the bottom, and then not buying back in till the top of the next boom, this is not realistic.
Offcourse, some people do make irrational moves like that and even use leverage, But the bad result they get is just an outcome of their irrational risky bets, not something wrong with the system, the vast majority would have just let their super ride the whole way through.
If you averaged you super contributions into the market for 10years before the crash and continued to do so over the last 6 years, you would be sitting pretty right now.
Value Collector
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Re: The official "ASX is tanking!" panic thread
It always seems weird to me when people seem to make out that people who have a stockpile of cash in a government guaranteed bank account some how disserve to earn a relatively large interest rate on that cash.
when people say things like "Savers are getting punished by low interest rates" it seems like they are suggesting that the "savers" should be able to earn high investment returns, by holding cash in a bank account, this does not make sense to me.
To me, a government guaranteed bank account is really only entitled to earn an interest rate that covers the rate of inflation, So the buying power of the cash holding is some what preserved over time by the compounding of the interest, But it receives no real investment earning above the inflation rate over time.
It always seems weird to me when people seem to make out that people who have a stockpile of cash in a government guaranteed bank account some how disserve to earn a relatively large interest rate on that cash.
when people say things like "Savers are getting punished by low interest rates" it seems like they are suggesting that the "savers" should be able to earn high investment returns, by holding cash in a bank account, this does not make sense to me.
To me, a government guaranteed bank account is really only entitled to earn an interest rate that covers the rate of inflation, So the buying power of the cash holding is some what preserved over time by the compounding of the interest, But it receives no real investment earning above the inflation rate over time.
Re: The official "ASX is tanking!" panic thread
Without cash savings the fractional reserve lending scam and whole banking system would collapse. That's why banks all over the world, including here, close their doors to stop people withdrawing their cash when a panic sets in. Considering how much the banks make by leveraging the deposits they hold, savers should be paid a lot more. And that is why the govt introduced the guarantee, even though its now been reduced, to stop the mass withdrawal of savings.
IF the demographers are correct, we have just commenced what will be the biggest depression in recent history. IF they are correct and the asx continues to tank, I assume you wont move to cash so what is your plan for what may be a 10 year depression?
Without cash savings the fractional reserve lending scam and whole banking system would collapse. That's why banks all over the world, including here, close their doors to stop people withdrawing their cash when a panic sets in. Considering how much the banks make by leveraging the deposits they hold, savers should be paid a lot more. And that is why the govt introduced the guarantee, even though its now been reduced, to stop the mass withdrawal of savings.
IF the demographers are correct, we have just commenced what will be the biggest depression in recent history. IF they are correct and the asx continues to tank, I assume you wont move to cash so what is your plan for what may be a 10 year depression?
Julia
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Re: The official "ASX is tanking!" panic thread
Only about ten days ago there was a news item to the effect that people who held their investments during the GFC (via the public super funds) now had balances in excess of those before it.
Obviously the index is still some distance away from the approx 6800 level before the fall, so some fund managers at least appear to have not been entirely sitting on their hands.
Reference to this:http://www.superguide.com.au/how-super-works/top-performing-super-funds-over-long-term
Only about ten days ago there was a news item to the effect that people who held their investments during the GFC (via the public super funds) now had balances in excess of those before it.
Obviously the index is still some distance away from the approx 6800 level before the fall, so some fund managers at least appear to have not been entirely sitting on their hands.
Interest rates on deposits are largely driven simply by supply and demand. When there was a squeeze soon after the start of the GFC banks needed cash and rates rose accordingly. They're now pretty flush with deposit money and rates reflect that.
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Re: The official "ASX is tanking!" panic thread
The accumulation index is higher than it was pre-GFC which probably explains why those balances are up, rather than the skill of fund managers.
The accumulation index is higher than it was pre-GFC which probably explains why those balances are up, rather than the skill of fund managers.
Value Collector
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Re: The official "ASX is tanking!" panic thread
Offcourse the banks should earn decent return when they lend money, they are the ones assuming the risk, they pay back the depositors principle and interest regardless of the outcome of the loans they make, the depositor takes on pretty much none of the risk involved in the transaction which generates their interest.
The depositor gets to store their cash for free in a safe government guaranteed place and have it pretty much inflation hedged through a small interest return, that is how I see it.
Can you explain how the banks "leverage" the deposits they hold, I understand the concept of the fractional reserve banking system, but the way your wording your reply makes me think your understanding of it is slightly warped, a bit like the way they incorrectly describe it in the "money as debt videos"
Offcourse the banks should earn decent return when they lend money, they are the ones assuming the risk, they pay back the depositors principle and interest regardless of the outcome of the loans they make, the depositor takes on pretty much none of the risk involved in the transaction which generates their interest.
The depositor gets to store their cash for free in a safe government guaranteed place and have it pretty much inflation hedged through a small interest return, that is how I see it.
Can you explain how the banks "leverage" the deposits they hold, I understand the concept of the fractional reserve banking system, but the way your wording your reply makes me think your understanding of it is slightly warped, a bit like the way they incorrectly describe it in the "money as debt videos"
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Re: The official "ASX is tanking!" panic thread
You are both right. This week I had to see a Financial Adviser who knows my Public Sector Superanuation fund intimately. She put it in writing for me, this was for the balanced fund:
"The maximum historical time to recover from a decline to a zero loss position for this lifestyle strategy is 4 years and 8 Months. This is the worst historical experience; all other declines have taken less time to recover to zero loss from the time of initial investment."
I went and checked this against my account which was in the Growth Fund and mine broke even in 4 years and 6 Months. Now it is well ahead.
The accumulation index is higher than it was pre-GFC which probably explains why those balances are up, rather than the skill of fund managers.
You are both right. This week I had to see a Financial Adviser who knows my Public Sector Superanuation fund intimately. She put it in writing for me, this was for the balanced fund:
"The maximum historical time to recover from a decline to a zero loss position for this lifestyle strategy is 4 years and 8 Months. This is the worst historical experience; all other declines have taken less time to recover to zero loss from the time of initial investment."
I went and checked this against my account which was in the Growth Fund and mine broke even in 4 years and 6 Months. Now it is well ahead.
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Re: The official "ASX is tanking!" panic thread
1, As Mc lovin pointed out the accumulation index has already eclipsed the pre crash point, If you are just looking at the normal index it doesn't paint a clear picture of actual returns because it is omitting dividends and solely focusing on price, which is misleading.
2, Yes, I agree (to a point). My comments were more inline with what sort of returns one should expect. I was mainly making a point that a lot of people seem to think "savers" should have special treatment, and that piles of money sitting in a government guaranteed bank should some how be expected to earn high earnings over and above the inflation rate.
To me, the guys taking the risk on investing those funds should take the lions share of the earnings those funds generate. If you want higher returns, you can take on a bit more risk and a little less liquidity and make some investments in company bond portfolio or buy some equity.
1, As Mc lovin pointed out the accumulation index has already eclipsed the pre crash point, If you are just looking at the normal index it doesn't paint a clear picture of actual returns because it is omitting dividends and solely focusing on price, which is misleading.
2, Yes, I agree (to a point). My comments were more inline with what sort of returns one should expect. I was mainly making a point that a lot of people seem to think "savers" should have special treatment, and that piles of money sitting in a government guaranteed bank should some how be expected to earn high earnings over and above the inflation rate.
To me, the guys taking the risk on investing those funds should take the lions share of the earnings those funds generate. If you want higher returns, you can take on a bit more risk and a little less liquidity and make some investments in company bond portfolio or buy some equity.
Re: The official "ASX is tanking!" panic thread
The way I understand it is it goes like this.
The humble saver deposits $100,000 into the bank. Based on this the bank can lend around 10x that, so the bank lends out $1m
The bank earns 6.5%, so $65000 in interest on the $1m that they lent.
The saver earns 4% on his $100k, so $4000.
Without the deposited funds, the bank would not be able to lend that $1m or make the $61000 net profit on that money. This is the leverage of the savings that allows the banks to make billions of $$ in profit based on what seems a small difference in interest rates.
But its a better margin than that when you consider the cummulative affect of the small accounts that recieve no interest at all. From all those small accounts that add up to $100k, the bank keeps the whole $65k.
Contrast that to the investor that buys $100k worth of bank shares. Those shares already exist, so the investor has not provided any new capital or contributed to the banks business at all, but demands a dividend for doing nothing.
The way I understand it is it goes like this.
The humble saver deposits $100,000 into the bank. Based on this the bank can lend around 10x that, so the bank lends out $1m
The bank earns 6.5%, so $65000 in interest on the $1m that they lent.
The saver earns 4% on his $100k, so $4000.
Without the deposited funds, the bank would not be able to lend that $1m or make the $61000 net profit on that money. This is the leverage of the savings that allows the banks to make billions of $$ in profit based on what seems a small difference in interest rates.
But its a better margin than that when you consider the cummulative affect of the small accounts that recieve no interest at all. From all those small accounts that add up to $100k, the bank keeps the whole $65k.
Contrast that to the investor that buys $100k worth of bank shares. Those shares already exist, so the investor has not provided any new capital or contributed to the banks business at all, but demands a dividend for doing nothing.
Re: The official "ASX is tanking!" panic thread
Ok here's an idea, everyone with savings in abc bank should withdraw all of their cash and buy abc bank shares. Abc bank would disappear in a heart beat.
Ok here's an idea, everyone with savings in abc bank should withdraw all of their cash and buy abc bank shares. Abc bank would disappear in a heart beat.
Re: The official "ASX is tanking!" panic thread
What about the $900k, does this magically appear in the bank's cash reserves? Where does it come from?
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Re: The official "ASX is tanking!" panic thread
The multiplier is across the system or rather it's money going out into the economy as loans and then being redeposited. Banks can't print money.
The multiplier is across the system or rather it's money going out into the economy as loans and then being redeposited. Banks can't print money.
Re: The official "ASX is tanking!" panic thread
I over simplified that a bit, its the whole system that ends up multiplying it, not always the individual bank. The banking system creates new money by issuing debt against the original deposit over and over again, and it works out to be a factor of about 10x.
But if each time the money was recycled it was done through the same bank, then the one bank would be the sole multiplier.
eg
person A deposits $10,000 at the bank.
The bank lends $9000 to person B, who buys a car from person C, who deposits the money back at the same bank.
The bank now owes person A $10,000 and person C $9000, a total of $19000. But it only received $10,000 in the first place. They have just created $9000 by lending and are now earning interest on the money they created out of thin air. If both A & C want all their money back, the bank doesnt have it. It has a $9000 problem secured against a car that is now only worth $5000. The bank is in trouble.
Now just rinse and repeat and the bank (or the system) can create around $100k of debt against that original $10k. Add zeros, millions of people and you get billions in profit when times are good, and a big hole when things go bad.
This guy does a better job of explaining it. Just think of each time he says another bank, it could also be a different person depositing back to the same bank.
http://www.gatewaycu.com.au/blogs-comments.aspx?id=4098&blogid=58
I over simplified that a bit, its the whole system that ends up multiplying it, not always the individual bank. The banking system creates new money by issuing debt against the original deposit over and over again, and it works out to be a factor of about 10x.
But if each time the money was recycled it was done through the same bank, then the one bank would be the sole multiplier.
eg
person A deposits $10,000 at the bank.
The bank lends $9000 to person B, who buys a car from person C, who deposits the money back at the same bank.
The bank now owes person A $10,000 and person C $9000, a total of $19000. But it only received $10,000 in the first place. They have just created $9000 by lending and are now earning interest on the money they created out of thin air. If both A & C want all their money back, the bank doesnt have it. It has a $9000 problem secured against a car that is now only worth $5000. The bank is in trouble.
Now just rinse and repeat and the bank (or the system) can create around $100k of debt against that original $10k. Add zeros, millions of people and you get billions in profit when times are good, and a big hole when things go bad.
This guy does a better job of explaining it. Just think of each time he says another bank, it could also be a different person depositing back to the same bank.
http://www.gatewaycu.com.au/blogs-comments.aspx?id=4098&blogid=58
Re: The official "ASX is tanking!" panic thread
Beachlife, maybe I'm a bit slow....
... but if I deposit $10k into a bank. And then you walk in and say want to lend $100k.
Where does the bank get the $90k from?
Are you saying that individual banks are creating physical cash?
So in that case, why does it appear as a liability on their balance sheet?
Surely that's a contradiction?
Beachlife, maybe I'm a bit slow....
... but if I deposit $10k into a bank. And then you walk in and say want to lend $100k.
Where does the bank get the $90k from?
Are you saying that individual banks are creating physical cash?
So in that case, why does it appear as a liability on their balance sheet?
Surely that's a contradiction?
Re: The official "ASX is tanking!" panic thread
They get the $100k they lend me from deposits made by you and others, but the proceeds of the deposits may be from debt issued by other banks, eg someone sold a house, the person that bought the house paid for it with borrowed funds. The cash the bank received is merely the debt issued by some other bank.
They arent creating paper money, they are creating book entries by creating debt. They only need to hold 10% in cash, the rest is just a book entry. This is why they close their doors when there is a run on for cash. They only have 10% of what they owe to the depositors. They cant pay everyone at the same time, so they close the doors and wait for calm.
It is a liability because they owe the depositors their money back one day. The debt they create is the income producing asset for them as it earns interest. The cash you deposit is your asset, so it is their liability to repay back to you.
They get the $100k they lend me from deposits made by you and others, but the proceeds of the deposits may be from debt issued by other banks, eg someone sold a house, the person that bought the house paid for it with borrowed funds. The cash the bank received is merely the debt issued by some other bank.
They arent creating paper money, they are creating book entries by creating debt. They only need to hold 10% in cash, the rest is just a book entry. This is why they close their doors when there is a run on for cash. They only have 10% of what they owe to the depositors. They cant pay everyone at the same time, so they close the doors and wait for calm.
It is a liability because they owe the depositors their money back one day. The debt they create is the income producing asset for them as it earns interest. The cash you deposit is your asset, so it is their liability to repay back to you.
Re: The official "ASX is tanking!" panic thread
Do you accept that banks are highly levaraged (ie for every dollar of equities there is a much higher amount of liabilities)? Their profits must come at a cost, otherwise the market is constantly out of equilibrium. So what are the risks that they have to accept to reap the profits?
So in other words, you're admitting that banks don't create money (it's money that is already in the system).
Do you accept that banks are highly levaraged (ie for every dollar of equities there is a much higher amount of liabilities)? Their profits must come at a cost, otherwise the market is constantly out of equilibrium. So what are the risks that they have to accept to reap the profits?
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Re: The official "ASX is tanking!" panic thread
Thats not how it works.
The bank is lending out 1mil in aggregate @ 6.5%, $90k+$81k+$72.9k etc
But people are also depositing that amount into the bank which it needs to pay interest on.
So $1mil lent out @ 6.5%
-1mil in deposits @ 4%
= $25k profits minus any bad debts
Thats not how it works.
The bank is lending out 1mil in aggregate @ 6.5%, $90k+$81k+$72.9k etc
But people are also depositing that amount into the bank which it needs to pay interest on.
So $1mil lent out @ 6.5%
-1mil in deposits @ 4%
= $25k profits minus any bad debts
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