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Hypothetical - the economy goes bust

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Thanks for your considered comments misterS.

Often people are persuaded that central banks are benevolent (they do an excellent job of it too I might add. We are here to help you. This is exactly how the banks sold the idea of the Fed to the US Congress. Of course to ram the Federal Reserve Act of 1913 through you need to do so in the dying hours of congress just before they all leave for their christmas dinners...

There is a country that does not have a central bank.
I point you to this article from www.mises.org
http://www.mises.org/story/2533

The thing to remember is central banks erode your wealth (as does the government through forced taxation) with the dilutitive effect of more credit being created. This means you end up requiring more credit to buy the same goods. The intrinsic value of the goods does not change. A house is still a house but you need at lot more credit to buy one now than you did in the past. Why more credit exists; not because the intrinsic value of the house has gone up (although in desirable suburbs you do get scarcity of supply which will increase the perceived value of the house - same thing with oil, the scarcity of a thing in demand will lift its perceived value to a purchaser).

The other side of thin air credit is that it gets paid back with real sweat. Not thin air. This the banks know. It is the interest stream they want. You have to work ie. create real wealth to pay back the interest on their thin air.

You mention many small banks printing their own currency. This happened in the US during the 1800's. Why is it such a bad thing. Customers get to know which bank is backed by real wealth very quickly. The key is to ask them, how much of their "currency" is backed by some kind of real wealth ie. gold, land title, art etc.

Of course if you are trying to be a national government (as was Lincoln aim) you can't pay for an ongoing war if you have run out of gold. So you need to issue credit and collect taxes. Lincoln did this by stamping the back of existing bank notes with green ink (from this we get the term "greenback"). Only these notes could be used to pay taxes.

You can see how governments need a central bank that issues credit. It holds up the lie that is big government. (As an aside consider this - without national governments war would basically cease to exist. See:
http://www.mises.org/story/2587).

As to increased efficiency I point you to another article from www.mises.org
http://www.mises.org/story/2601
this is a case of lack of efficiency because the free market is not allowed to do what it does. Similarly central banks only exist through a forced legislated mandate. They only exist to control governments.

The other lie the government feeds you is that of social security.
Mises again
http://www.mises.org/story/2586

As to a replacement for central banks - the free market.
 
BradK said:
I wonder if anyone who has a commerce or financial planning degree could comment on whether this sort of stuff is covered in their courses?
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From my investigation into courses that say FINSIA http://www.finsia.edu.au runs (btw Colin Nicholson is one of their lecturers in stock market analysis), I would say not. They tend to focus on classical economics in which money supply is held to be constant. Even so you can do a reality check here by going to talk to a financial planner (what I call a salaried planner) and ask them if they know how money is created.

Acutally I have a better question that I ask of any financial planner I meet. It is the first question you should ask them. The question is this:
"Are you rich?" pretty confronting, but why would I want to talk to someone who isn't. After all they are going to be suggesting how I should arrange my financial affairs...

By the way, is the Australian Reserve Bank set up along the same lines as the US Fed? I went to both the Australian and the Bank of England and they seemed to sing from the same hymn sheet.

Cheers
Brad
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Amen to that LOL
The RBA is slightly different in setup to the Fed. The Fed was formed by several large bankers forming a corporation which they owned and by sleight of hand became the US governments banker. The RBA was formed by splitting the retail arm of the then Commonwealth Bank off and keeping all the assets in the RBA (neat huh). This was done in the 1950's (have to dig my archives to find the exact date and legislation that caused it to happen). So the real question is how did the Commonwealth Bank come into existence... That is one of my ongoing research projects. Stay tuned.

That aside the RBA operates in the same fashion as the Fed. It issues credit to buy government bonds. However at the moment the Aust government is in surplus. They have paid off their debts so they don't need to issue any more bonds at the moment. However member banks (the big four and others) still create credit under the direction of the RBA.

The Bank of England is a different story - it was created by a Nathan Rothschild, not by the government nor the king. It actually attacked the king's system of money - the tally stick. But that is a whole other story.
 
lakemac said:
The Bank of England is a different story - it was created by a Nathan Rothschild, not by the government nor the king. It actually attacked the king's system of money - the tally stick. But that is a whole other story.
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Any links?
 
Further info on the RBA can be found in
"Inside the bank : the role of the Reserve Bank of Australia in the economic, banking and financial systems" by Joan Linklater which should be available at any state library.
 
lakemac said:
You might also want to get a copy of this DVD:
www.themoneymasters.com

That will really bake your noodle (as someone on the Astronomy thread in this forum said quoting The Oracle from the movie The Matrix).
Click to expand...

Just about all these documentary's are available on Google Video:

Money Masters ==> http://video.google.com.au/videoplay?docid=-515319560256183936

America: Freedom to Fascism ==> http://video.google.com.au/videoplay?docid=-1656880303867390173

And if you really want to bake your noodle, watch this one, it ties Religion, 911 and the Federal Reserve all together...

ZEITGEIST, The Movie ==> http://video.google.com/videoplay?docid=5547481422995115331&hl=en
 
Hi all

This is all great thought provking stuff. On one hand scary on the other hand a way of reading the signs for some preparation.

To the layman it all looks very complicated and probably seen as far fetched.

Now what action does one take: Reads all this stuff and decides to act:

Sells the investments be it property or shares
Is all cashed up
Retains the PPOR freehold the title is in their hot little hand.

Time passes the what appeared crisis eases and property doubles after 10 years as is generally accepted.
Shares continue the rescourses boom and the stocks one held are worth many times from when they were sold

Retirement is looming and only have a PPOR.

Or

The signs and warnings come to pass and ones sits back smug and waiting feeeling pretty good about themselves that they picked it correctly and lucky they got out from the banks grasp.

Or

Stand stands firm putting things together for the retirement stage of there life and it happens and they lose everything

What does one do:

I remember a title wave being predicted for Adelaide in the 70s people sold and left the state etc PANIC. Still no title wave 2007.

How would one put all this into perspective and put themselves in a position either way:
Sell some and hold some perhaps?


cheers
SG
 

I think the most important thing to do is get out of debt.

Those that have no debt will be in a prime position to take advantage during/after any bust...

I'll be going into debt, when debt is really hard to get
 
Hi

Lets face it the modus operandi of the nation has been to get into debt.

People buying properties like there is no tomorrow 106% 100% 95% LVR ETC
Negative gearing or relying on TAX deductions to facilitate purchases and Banks happy to accomodate.

Credit card debt well we all know about that one as a nation

Shares Margin lending being encouraged

Releasing equity for investment more debt.

The Government has got people scared and instilling that they need to organise themselves to be self funded retirees as there is not enough money to go around for retirements in the future.

People are dabbling in areas that they don't necessarily understand look at ACR FIN recently.

So people trying to do the right thing and try and put something in place for their retirement as the BABY BOOMERS appear to be the ones that are most mentioned. So they are taking on debt.

This can get very ugly if it unfolds in the manner which has been touched on.

Of course as a nation we are a debt ridden one the citizens carrying the debt that is.

First home buyers etc etc

Time to open up a funeral business?

Cheers
SG
 
Yes. These two statements should be read as corollaries of each other.
However, there will always be some sort of safety net pension. The government is, perfectly reasonably, encouraging people to provide for their own retirement and is offering some pretty good incentives to this end.
But there will always be a large proportion of our society who cannot or will not provide for themselves and I doubt we will ever see the time when we simply throw those people entirely on the scrap heap.
Whether anyone would want to be dependent on just the age pension is another question entirely.

So people trying to do the right thing and try and put something in place for their retirement as the BABY BOOMERS appear to be the ones that are most mentioned. So they are taking on debt.
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Well, I'm a baby boomer and I wouldn't consider taking on any debt. Neither do any of my friends have any need to do this, so I'd question the suggestion that many baby boomers are taking on debt.
An exception to this could be not baby boomers, but people a generation on who are taking out reverse mortgages with much abandon. This is all fine as long as they understand the huge debt which can mount up if they live longer than expected. I can envisage some pretty nasty family arguments on this one.

Time to open up a funeral business?
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Or perhaps before that, get into the retirement village business. This must be immensely lucrative. Most of them function on the basis of a "depreciation allowance". This is pretty funny when you consider how property appreciates over time. i.e. Say a retiree buys into a villa in a retirement village. They get just a licence to occupy. Do not own the land or the villa outright. Usually it is a 99 year lease. As an example, say the villa with its licence to occupy is sold to Person A at $200,000. A condition of sale is that when they sell/die, the village retains the right to onsell the villa and the resident/family is refunded the original purchase price minus usually about 35%. No proportion of capital gains on the property is available to the resident/family of deceased.
Then the village does a bit of redecorating and then once again sells the same villa to a new retiree under the same conditions, having pocketed the capital gain.
There is such a high demand for the security offered by retirement villages that they have absolutely no problem getting away with this.

So, before funerals, I reckon it would be worth owning a few retirement villages.
 
The Reserve Bank Act 1959 took effect from 14 January 1960.
So the real question is how did the Commonwealth Bank come into existence... That is one of my ongoing research projects. Stay tuned.
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Here's my potted version, based on a couple of hours running around the Web and drawing heavily on Wikipedia. I'm sure you're already a lot further than this lakemac, but I'm putting it up (a) for confirmation or otherwise; (b) to maybe save you a bit of time after the tremendous work you've put into your posts; (c) because I've got a heck of a lot of questions.

The Commonwealth Bank was formed by the Federal Government by the Commonwealth Bank Act 1911, with a Governor who had absolute control (i.e. no board oversight and what seems to me a somewhat confused relationship to government), and no central banking functions. I get the impression that it acted as an agent of government in some ways through WWI, but I'm fuzzy about how. The bank's central banking role expanded from about 1920, to the extent that by 1931 it had acquired a board and enough independence from government to "refuse[d] to expand credit in response to the Great Depression (as had been proposed by Treasurer Edward Theodore) unless the government cut pensions, which Scullin refused to do. Conflict surrounding this issue led to the fall of the government, and to demands from Labor for reform of the bank and more direct government control over monetary policy."

Still quoting Wikipedia: "The Commonwealth Bank received almost all central bank powers in emergency legislation passed during World War II and at the end of the war it used this power to begin a dramatic expansion of the economy. This was also the aim of the Government at the time, which colossally expanded immigration programmes. To respond to this, the bank established a Migrant Information Service. "

I would expect that the Australian central bank would have modelled itself more on the Bank of England than the US Fed, just on general cultural grounds. It also seems to me that there has never been as much "separation of powers" (so to speak) between the central bank and the government in Oz as there was in the US.

Which is another way of posing the following question:

Until 1983 Treasury (i.e. the government) controlled the supply of credit, through interest rate setting, not either the Commonwealth or the Reserve Banks. By your analysis, that suggests a fundamental difference in control of money between the US and Oz, at least until that time. Doesn't it?

Reading what I just wrote, I'm quite sure that I don't understand money supply, in spite of my two semesters of Economics umpty-mumble years ago. Or at least I don't understand why you are so dismissive of interest rates. F'rinstance, I went chasing the foundation of the Reserve Bank because I vividly remember the 1961 credit squeeze, which threw my father out of work and affected the family finances for years. That was initiated when the then Treasurer, Harold Holt, raised interest rates - presumably on government bonds - with the intention and effect of reducing available credit.

Or are you saying that interest rates are the price of money, so interest rate movements might be either a cause or an effect of the supply of money?

Very interesting stuff lakemac and others. Thank you.
 
Hi Julia

Well, I'm a baby boomer and I wouldn't consider taking on any debt. Neither do any of my friends have any need to do this, so I'd question the suggestion that many baby boomers are taking on debt
Click to expand...

Perhaps in your situation and circle of friends. If you look at the people in those investment seminars they are BABY BOOMERS. How many times do you hear it LOST ALL THEIR SAVINGS or are still in debt and have LOST IT ALL due to some complicated or slik scheme.
Don't take this in the wrong context i am merely saying that in order for people to get a reasonable standard of retirement they are being put in a position to have to take some steps to invest, otherwise living on a very meagre existence indeed if solely relying on the Govt. Pension.


Or perhaps before that, get into the retirement village business
Click to expand...
.

Yes i know what you mean my comment was bit of tongue and cheek and in the context that the credit squeeze was on and people were losing their assets.

Cheers
SG
 
Robert Quackosaki turns überbear

http://finance.yahoo.com/expert/article/richricher/37414
 
Sounds like a good ploy to wind up owning the whole planet.

Create a huge boom making money out of nothing, and then deliberately crash it and wind up with everyones assets.
 
Kimosabi said:
Sounds like a good ploy to wind up owning the whole planet.

Create a huge boom making money out of nothing, and then deliberately crash it and wind up with everyones assets.
Click to expand...
They already do Kimosabi.

Robert has some good ideas - I started with his book Rich Dad Poor Dad then moved on to Cashflow Quadrant and his Rich Dad's Prophecy.

However, from my own research, I don't believe Robert fully understands the underlying issue which is the banks. He mentions in that article that wayneL quoted that Japan went bust in 1990 without mentioning the root cause. This is where I find his books hit a limit. Great introduction to the subject of money, starting a business and what is going to happen to the US 401(k) and Roth (superannuation) schemes, but they lack the depth needed for futher investigation.

I still recommend his books to those starting out on this fascinating story. Then I suggest the MoneyMasters video and Richard Werners book The Princes of the Yen. Then the Rothschild's biography by Nial Ferguson. By then you will understand world history, economics and how to survive the banking system.

Mind you just yesterday a bank created some thin air for me. Must go and breath it in LOL...
 
BradK said:
Any links?
Click to expand...
Best into the Bank of England is the MoneyMasters video
www.themoneymasters.com

It covers the tally stick system and the early part of the bank.
The best background knowledge of the bank of england is in Nial Ferguson's bio of the Rothschilds. Heavy reading though. You have to wade through a lot of personal stuff to get to the meaty bits.

ghotib thanks for the lookup of the Reserve Bank Act. I didn't have time to go back and check my sources
 
Hey lakemac,
This is a greate thread. I'm only half way through it (time lacking) but am really enjoying the thought provoking ideas.

Question though......... A couple of pages back there is a post from wayneL quoting "BIS warns of Great Depression dangers from credit spree", which appears to be a warning to central banks and governments of impending doom. I get the impression, from what I have read on this thread, is that you are suggesting that, for whatever reason there is a conspiracy (is that too strong a word) from central bankers and the rest of the banks to create a new world order whereby they get to control the whole shooting match. And I think you are saying that one of their main weapons is the control of credit (by turning it on/off to suit their agenda). If that is the case, then why is BIS putting out this warning? Are they simply lying about their concerns (suck people into thinking they are good guys) because they ultimately have the power to control credit and therefore save their own skins whilst picking up some cheap property deals when the whole thing turn crapolla.

One other point.... I thought I read where you are saying that China has learnt from Japan's mistake and does not seem to be playing the bankers credit game. The BIS statement doesn't appear to agree with that.

Also, I don't think the NAB balance sheet is even as "good" as you state. The 2006 concolidated balance sheet shows $284bn assets and $456bn liabilities, with $28bn of "thin air". But within the assets there is about $51bn in trading derivatives & securities and funds due from other banks. There must be a fair amount of "thin air" in that lot. And $5bn of goodwill - when the shan hits the fit wouldn't really be worth anything.

One last thing. There is a blog in todays online "The Australian" about housing affordability. Check it out. Maybe some of the contributors should read this forum, as their ideas of economic fundamentals are so wacky, they must be smoking some of that stuff you suggested putting in the microwave.

P.S. any views about the World Bank and IMF in all this?
 
Kimosabi said:
Sounds like a good ploy to wind up owning the whole planet.

Create a huge boom making money out of nothing, and then deliberately crash it and wind up with everyones assets.
Click to expand...
It could happen. It may be happening. It would make a great story for a movie, Any budding authors out there?
 
They can put it out there because few listen. It is what I call fox-speak. The key is to watch the credit cycle not the interest rates. Everybody is focussed on interest rates which are not the real drivers (cf Japan with zero interest rates and a moribund economy, cf germany with hyper inflation during the intrawar period, cf USA/England during the 1970's with stagflation ie. high interest rates and moribund economy).

Think of it like a war - some of the information out there is propaganda. Richard Werners book on the Princes of the Yen has a great section on the way the Bank of Japan puts out all this research on the economy yet none of the main staff really know what is going on with the credit/window guidance system in Japan. Mis-information is a great tool to keep the masses silent.

One other point.... I thought I read where you are saying that China has learnt from Japan's mistake and does not seem to be playing the bankers credit game. The BIS statement doesn't appear to agree with that.
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I don't think I said that but if my words are not clear or a misunderstanding is possible, China has learnt from Japan only in that they have learnt how central banks work. The Peoples Bank of China has sent/received many staff from that other esteemed institution the Fed. The fascinating thing about a centrally controlled country is that it is much easier to impose your kind of banking on the masses. They are so used to central planning that they know no different. The banking system in China is well grounded in central banking techniques. IMHO the key to the next recession will be the reduction of credit in china. I can only surmise it is going to happen once China's new workers reach critical (borrowing) mass. I have yet to find a reliable source of information on this.

Grasshopper speaks the truth

Same kind of b***** that came out of the Productivity Commissions report on housing affordability. That report by the RBA had one small paragraph about the inflationary effects of credit creation. Not bad for a report of 59 pages... Yeah right.

P.S. any views about the World Bank and IMF in all this?
Click to expand...
My (limited) understanding of these two is that they are front men; smoke screens; the magicians hand if you will. Look more at the BIS (Bank of International Settlements) than the other two. The World Bank and IMF get involved in highly visible, politically charged situations. Real money men don't do that. They prefer anonymity to publicity. 'nuf said.
 
A point to people reading this thread, please don't take what I am saying as the truth. Find out for yourself.

Question what you read. Question your sources. Question your assumptions.

I started out researching this stuff 8 years ago.
At first I didn't believe it so I kept looking, digging, questioning.
I built up masses and masses of news articles, reports, comments, books and other materials. Cross referenced it then and only then started to build a coherent economic model for myself.

I throw down, in fact welcome anyone who can challenge this information. I want to know more. Scientific method involves looking at the data, formulating hypothesis then testing against yet more data. Only when you can predict an outcome with some kind of statistical accuracy can you claim to have a valid theory. To date, I would only dare say I have a hypothesis that might be of use nothing more.

By the way for those of you who subscribe to Australian Property Investor have a look at the article on page 14 of the Jul 2007 issue. Talks about property (one of the largest credit creators in the economy) LEADING the economy (in the article they use GDP). Funny how that might happen. Credit creation/destruction leading and economy... Great graph there too.
 
lakemac said:
You are welcome.

Oh dear another one to add to my reading list.
Thanks for the referral.
Click to expand...

Excellent reading there Lakemac, thanks for the great insight! And I'm sorry again, I got another article for you to read and comment. It's related to Borou's book.

It's Official: The Crash of the U.S. Economy has begun

http://www.marketoracle.co.uk/Article1291.html

I only got more aware of this scenario from Dr Van Tharp's big pictures idea, but came across more and more of this kind of discussion on the US mounting debt and its implication on the global economy.

It's going to be interesting to see how all this will wrap up in the future.

I agree that it is extremely imperative for one to be aware of how the world "operates" and get away from thinking that "everything will be alright" and that the government will take good care of your future in case bad things happen.

Not to mention if you want your family to live comfortably in the future, be aware of such scenarios and prepare yourself and insure against such possible crash.

It's amazing that when you go out and ask everyone you know about this sort of stuff, they would say you are a pessimistic guy and such thing will never happen. Obviously, everyone, especially the young (like myself) are suffering from the recency psychological biases. That we have lived through propersity time and since we never lived through a bad recession or a depression, we never thought about the possibilities and implication of it.

It's so naive to think that the world economy will continue to function perfectly in the next 50 years and your future is secured simply by working for a company and do what everyone else are doing by investing into the share market or properties through advises from so called "professionals".
 
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