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.
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.
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?
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.
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.
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.
- 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).
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.
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
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