Friday, 17 April 2015

RBA and the trillion dollar question

Having helped create a truly grotesque debt-driven asset bubble, the proceeds of which have already been spent, the RBA bubbleheads and their media cheerleaders are getting visibly nervous. The banksters now hope for a "soft landing" for property and bank stocks. This betrays a fundamental lack of understanding of the basic mechanics of a bubble. Simply put, the current price of property is based on what is perceived as guaranteed future capital gains, and were the expectation of said capital gains to disappear, prices would collapse.

Expected future price rises are the only reason buyers are willing to pay current prices, in the very definition of a bubble. Since the current price of property is dependent on continuing unsustainable price rises, a soft landing is impossible. Bubbles can only ramp up or collapse, it is in their very nature. This is easy enough for a child to understand, but for those whose living depend on not understanding, naturally this is all incomprehensible.

The talking beards of the media sometimes advocate increasing the supply of "housing" as a solution. But it is not demand for "housing" that drives the bubble, it is demand for capital gains, demand for admission to the state sponsored pyramid scheme, to get rich without effort or risk. Say the government sold a product with a guaranteed 10% return, and people could borrow at 5% to "invest" in said product. The demand for this product would be infinite, people would rationally borrow as much as possible to "invest", to the point of collapsing the economy.

The key question for determining the size of the Australian property bubble is simple. Beyond all the verbiage, beyond the smoke screens and deflections, there is a key metric that is never ever discussed. This is the question the dourfaced bubblehead at the RBA should be forced to answer:

What long-term future growth rate is priced into current property prices?

The size of the bubble is directly determined by how much this expected future rate of growth in prices exceeds the future rate of growth in net rental incomes. The banksters would of course never give a straight answer to this simple question, it would be unthinkable even to pose it.

5 comments:

  1. The interesting thing is the media companies own the largest majority stake in real estate advertising companies such as domain.com.au and realestate.com.au. Why would we expect them to give us any real answers?

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    1. Yup good point. Venality and shameless self-interest at every juncture. And with two thirds of people owning property or paying off a mortgage, do Australians even want to hear the real answers? We sold our kids for capital gains. This is how you create a criminal scheme that nobody will oppose: you make everyone an accomplice.

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    2. Its like how they will not report anything against HSBC after their security leak exposed account holders to prosecution for tax evasion internationally (Full page advertisements for HSBC).

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  2. I get sick of people looking at me like I'm insane when I say I am not interested in investing in property because I do not see the sense in shelling out over 10x yearly income over a period of 10-30 years and carrying the exposure to increases in rates for that longer time period on something that does not generate any income.

    At what point did trying for a debt free existence make me a pariah and how can people willfully ignore that over 50% of purchases in the market now don't even come from Australians and that this volume of purchases is likely to drop off as quickly as it has ramped up over the last 4 years...

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    1. Hi Jimbo, thanks for commenting. You must remember, the bubble is a matter of faith for the bubbleheads and market fundamentalists. Trying to reason with them is pointless, as you say, they just look at you like you're insane if you try.

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