Printing more money = inflation - how?

[Macquack]

The causes of inflation during the boom and subsequent deflation are little to do with printing money par se. It is to do with fraudulent credit creation by the banks.

In order for a bank to lend money, it only needs to hold a fraction of the loan amount, not the entire amount. When a loan is made, the bank has created money that was not there before, which is effectively the same as printing money.

Great summary, if only everyone could understand this.

Credit creation without the GDP means to back it up is inflationary. During the credit boom, there was a lot of money (credit) available which caused high inflation.

Its about time world governments restricted the growth of the money supply to only match growth in GDP and NO MORE.

Inflation is a form of taxation that reduces "real" purchasing power.

 

[juw177]

Beej, this is the second time you have insisted that Australia did not go through a credit boom (now bust). Look at the property boom, the rise of Babcock and Mac Bank, the exponential increase in private foreign debt.... how many people do you know who maxed out their credit card and did a 0% balance transfer?

 

[lioness]

The causes of inflation during the boom and subsequent deflation are little to do with printing money par se. It is to do with fraudulent credit creation by the banks.

In order for a bank to lend money, it only needs to hold a fraction of the loan amount, not the entire amount. When a loan is made, the bank has created money that was not there before, which is effectively the same as printing money.

Credit creation without the GDP means to back it up is inflationary. During the credit boom, there was a lot of money (credit) available which caused high inflation. No stop was put to the increasing of leverage and the intentional mis pricing of high risk loans.

But, we now find that the credit were bad loans. The defaults start happening. No more credit is issued because everyone is overcapacity in debt and there is not enough reserve to support any more loans. Now have deflation.

I keep telling you DEFLATION is here and now. Worry about inflation in 2 years time, trouble is once deflation sets in, inflation does not comes for a decade. no-one is listening on here, just listening to the sheep who keep stating deflation is not a problem. Look around you rising unemployment all around te world and we are next. Spain has 20% unemployed now.

 

[Beej]

Beej, this is the second time you have insisted that Australia did not go through a credit boom (now bust). Look at the property boom, the rise of Babcock and Mac Bank, the exponential increase in private foreign debt.... how many people do you know who maxed out their credit card and did a 0% balance transfer?

So where is our sky high mortgage default rate? Massive increases in personal bankruptcies? Banks going bust due to mass default on all their "fraudulently created" credit?? Is lending to consumers frozen in Au right now? No! A few highly leveraged corporates going under does not a 30 year credit boom and bust make..... Seen things like this happen many times before.... Are you old enough to remember the antics of Alan Bond (Bondcorp) and Christopher Skase (Quintex) in the late 80s?? What about the .com boom/bust even?

There seems be this almost religious zeal around internet forums like this one about this issue, which extrapolates a potential concern about high-ish consumer debt levels (which appear to be quite manageable in AU) with an irrational belief that all debt is bad, the fractional reserve banking system and FIAT monetary systems etc are a big fraud and are all going to collapse and so on. The end of the world is nigh and all that.....get your tin foil hats on and stock up on baked beans and shotgun ammo quickly!

Instead of joining this religious bandwagon I tend to agree with more mainstream views like those of the RBA governor Glen Stevens, who has stated many times that Australian consumer debt levels seem quite manageable, especially now that interest rates are at all time lows. All the data backs this up. Australia did not and does not have a sub-prime lending crisis or anything like it that has brought the US financial system into it's current woes - we are impacted by the problems there yes for many reasons, but a local credit crisis/bust is not one of them IMO.

But, anyway, you believe whatever you want to believe.

Cheers,

Beej

 

[kincella]

beej...hear hear....
they would probably be surprised to learn that even low doc loans are still available....and this time CBA has them at the same rate as an ordinary standard variable rate....not a higher rate as most had them before this fiasco.....
the abs stats when I last bothered to look had the average home loan around 240,000...at current rates of 5% thats only 12,000 pa interest cost....or about 250 pw....almost everyone can afford that amount for a roof over their heads
Must admit I buckled under the weight of the 10% interest rates last year....but beginning to feel its time to come out and do some spending....if only to assist some people to stay in jobs....and the bargains that are out they ...almost unbelievable....so have been buying up for family and friends...the only thing I want...is probably a new car....there is nothing I need.....might buy a laptop for some of the family too....with wireless broadband now they dont need the additional cost of a telephone...landline to hook up...most are on mobiles only
cheers

 

[juw177]

So where is our sky high mortgage default rate? Massive increases in personal bankruptcies? Banks going bust due to mass default on all their "fraudulently created" credit?? Is lending to consumers frozen in Au right now? No! A few highly leveraged corporates going under does not a 30 year credit boom and bust make..... Seen things like this happen many times before.... Are you old enough to remember the antics of Alan Bond (Bondcorp) and Christopher Skase (Quintex) in the late 80s?? What about the .com boom/bust even?

- Mortgages with 5% down payment and low interest rate with the assumption we were in a property boom?

- Credit card customers getting limits beyond their means

- Government having to guarantee bank debt and deposits because our banks are struggling to raise capital

- Government having to bail out REIT

- Government having to pay increasing yields on bonds in order to borrow

- ASX tanking more than the SPX

- AUD crash... what happens to our foreign debt costs?



**** WILL hit the fan simply because sums don't add up. I expect the trigger will be unemployment and world interest rate rise.

Do you remember how the world got out of the late 80s crash and the dot com crash? Without going into detail, it was by blowing the biggest credit bubble the world has ever seen. That option is now off the table.

Instead of joining this religious bandwagon I tend to agree with more mainstream views like those of the RBA governor Glen Stevens, who has stated many times that Australian consumer debt levels seem quite manageable, especially now that interest rates are at all time lows.

Does he realise unemployment is rising and asset prices are dropping? I will not be taking the mainstream view because they have been proven to be consistently wrong.

 

[aleckara]

Its about time world governments restricted the growth of the money supply to only match growth in GDP and NO MORE.

Inflation is a form of taxation that reduces "real" purchasing power.

I absolutely agree with this statement. The only problem with this of course is that inflation is very popular to the average punter. It makes them think they can get money the easy way just by talking to the bank manager. Get a loan on a house is the only way to build wealth after all, even though in reality most of the time no new assets have been created.

nstead of joining this religious bandwagon I tend to agree with more mainstream views like those of the RBA governor Glen Stevens, who has stated many times that Australian consumer debt levels seem quite manageable, especially now that interest rates are at all time lows.

So what? When affordability goes bad due to credit induced inflation we pump in more money to reduce the interest rates to bring back affordability to start it off again? Yeah lets keep the debt rising. Benefits the people who got in early. When does it end? When does the dog stop chasing its tail? Affordability with a flick of a pen courtesy of the RBA. Wait .. when your like the US and Japan and the interest rates hit zero.

I never agreed with calculating affordability by interest rates. income generated to the person trying to acquire it should be the measure of affordability just like everything else people try to buy. You don't say a computer is more affordable because interest rates are lower do you?

 

[juw177]

^^ Yes, inflation benefits those who know how to take advantage of it by buying assets that are certain to return above inflation levels. If you don't know how to take advantage of inflation, you lose out big.

And yes, interest rate does not matter much if you can't even afford the principle in the first place. Even at rock bottom rates, your principle is still COMPOUNDING.

 

[Beej]

- Credit card customers getting limits beyond their means

- Government having to guarantee bank debt and deposits because our banks are struggling to raise capital

- Government having to bail out REIT

- Government having to pay increasing yields on bonds in order to borrow

- ASX tanking more than the SPX

- AUD crash... what happens to our foreign debt costs?

You know, I don't see you pointing out there any of the things I mentioned in my post (record mortgage defaults, bank insolvencies etc). These would actually be symptoms of the great "fraudulent" credit creation event for which you are arguing. You can see these symptoms in the US, but we don't see them here in AU.

Like I said, you believe what you want to believe. I'm not buying into this particular cult.

Beej

 

[juw177]

You know, I don't see you pointing out there any of the things I mentioned in my post (record mortgage defaults, bank insolvencies etc).

What do you mean?

The news has been reporting about property repossessions for a while now.

No one knows if the banks are insolvent or not... but we do know the government had to intervene to help them refinance through borrowing offshore. Remember, our currency is crashing. At least the US don't have to externally finance their banks.

Note that Australian law does not allow defaults like the US which might keep the banks up for a bit longer.

 

[Beej]

What do you mean?

The news has been reporting about property repossessions for a while now.

They are incredibly low. They were going up when interest rates were still rising (but were still MINUSCULE by US/UK standards), and have been getting lower ever since rates started coming down.

No one knows if the banks are insolvent or not...

In the US.... meanwhile Australia we do know! Open your eyes - they are all reporting right now, most are still making huge profits. Our prudential regulation is far more strict than in the US and the banks cannot be still operating if they were in fact insolvent. Our system has been proven to work much better than theirs. We don't have a huge base of toxic/worthless assets sitting on our banks books. The situation in AU with our banks is chalk and cheese compared to the US!

but we do know the government had to intervene to help them refinance through borrowing offshore. Remember, our currency is crashing. At least the US don't have to externally finance their banks.

I don't know what point you are trying to make here?

The government intervened (deposit guarantee) because in Australia we had none and there was a crisis of confidence driven by fear over what was happening in the US and the UK - this created the very real danger of a bank run, which then becomes a self fulfilling prophecy. The guarantee nipped this issue in the bud, and it hasn't actually cost them one cent. Pure confidence you see issue you see? No banks here were actualyl even close to going under.

Re currency crashing - pretty subjective statement! 65c is hardly a crash - still 44p to the pound, which is actualyl pretty good. Our currency goes up, our currency goes down - it actually helps stabalise the AU economy (quite effectively) when things change on the global scene.

Note that Australian law does not allow defaults like the US which might keep the banks up for a bit longer.

You've lost me here too..... so you are STILL predicting an impending banking crisis in AU??

Beej

 

[juw177]

Very well...

I wasn't talking about deposit guarantee, I was talking about the bank debt guarantee. FYI, our prudential regulation allows for off balance sheet assets and their values are not reported. Our dollar might be ok against the pound, but too bad our foreign debt needs to be paid in USD.

Other than that, if you believe our currency is doing well, mortgages are fine, banks are transparent about their balance sheets... I have nothing more to add.

 

[Dowdy]

You know, I don't see you pointing out there any of the things I mentioned in my post (record mortgage defaults, bank insolvencies etc). These would actually be symptoms of the great "fraudulent" credit creation event for which you are arguing. You can see these symptoms in the US, but we don't see them here in AU.

Like I said, you believe what you want to believe. I'm not buying into this particular cult.

Beej

Well, you bought into the speculative house buying cult.

This so called belief that you call a 'cult' is just Austrian Economics where they let free markets work and use history as their teacher.

And it seems in history Fiat money always comes to the same conclusion - it ends up being worthless

 

[robots]

Well, you bought into the speculative house buying cult.

This so called belief that you call a 'cult' is just Austrian Economics where they let free markets work and use history as their teacher.

And it seems in history Fiat money always comes to the same conclusion - it ends up being worthless

hello,

spot on, many are probably in with all the poverty pack crew

bid deal, you dont have to be part of anything

all I know is thanks to ABS stats, property owners 6x more $ than renters, paradise

keep spending

thankyou
robots