Tag Archives: credit expansion

The Apologia Of An Awakening Real Estate Agent

25 May

awakening

Reader “Phil” had the following to say, in response to Thursday’s post, Real Estate Marketers Now Out To Get Your Kids.

His words are an object lesson for real estate industry professionals everywhere (my bold added):

As a licensed real estate agent myself, I would like to suggest a difference between single office agencies and franchise groups. The typical stereotype of a real estate agent is derived from the high flying top 3%. There is no doubt there are some wankers in the industry. The rest that I know are hard working good people who support families and employ staff of 10 to 15 on average. That goes for many of the offices within franchise groups.

Since 2008, I have stood back and looked at the industry a bit differently. I have recognised that most real estate agents have no idea that it is bank credit expansion that causes house prices to rise. Or as Steve Keen explains, actually “growth” in credit expansion.

This is only possible due to legislation allowing private banks to use housing equity as security to create credit. We just continue to do this as that appears to be the way it always was. (IMO housing should be a consumable not an asset).

BTW, hat tip on your recent article exposing those who foster the continuation of the “housing industry” as a financial derivative.

Back to the franchise groups and franchises in general (Parasites!!!). This is not unlike usury or rent seeking. They take franchise fees from hard working small businesses and promote corporate ideals. The LJ Hooker promotion is revolting IMO.

I keep returning to your story of the used car salesman. Most people just keep doing what they know to do to get by or maybe get ahead. We are all preyed on by those who control and promote the FIRE structure.

As one who is now seeing the reality of this I feel a responsibility to speak. Much as you do. I tend to do this even as it makes me an outsider. Strange that huh?

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Guest Post – The ‘Moneyness’ Of Debt

27 May

Submitted by reader JMD.

I will express a view here that is, as far as I can tell, being laid out by few others. I can’t claim the idea as my own, rather I have put this together based on the thoughts of Doug Noland, my favourite economic analyst by a country mile, who publishes the Credit Bubble Bulletin. I have taken the liberty of lifting quotes directly from his articles, they are in italics throughout my article, though I may have changed his wording just a little to fit in with the flow.

Readers of the Gold Standard Institute know that money is what extinguishes all debt, nevertheless, credit1 can be considered a monetary equivalent or ‘money good’, take for example, Real Bills that mature into gold. Inextinguishable debt, as in irredeemable dollars and dollar denominated debt, are not money since they are, well… inextinguishable debt. Despite this contemporary irredeemability, credit is still considered to be in a dynamic state of ‘moneyness’, driven by the marketplace’s perception of safety and liquidity, and any meaningful definition of contemporary ‘money’ must include government debt instruments.

The situation prevailing today is that key developed economies are locked into a perilous cycle of massive non-productive government debt expansion. Rather than the global money markets being composed of Real Bills, generated through the drawing of short term bills against consumer goods actually required by consumers, we have money markets where for nine quarters now, government finance has completely dominated system credit creation. These ‘marketable’ debt securities now absolutely dominate the world.

Just how massive has this increase in government debt issuance been? I draw your attention to the charts below.

As you can see, government debt issuance has reached levels never heretofore imagined. UST issuance reached almost $1.5 trillion in 2009. While the dollar amount of Australian government debt issuance is small in comparison to the US, the pattern of expansion is the same. I have included Australian government debt issuance back to 1985 to give some perspective of historical issuance. I don’t have figures pre 1996 for UST’s, nor 2010. Nevertheless, you get the picture.

Why the fuss? Because it is the ‘moneyness’ nature of government obligations that they enjoy special treatment in the marketplace. Readers of the Gold Standard Institute also know that when it comes to the ‘moneyness’ of credit it’s not just quantity but quality that counts. I think it safe to presume that government debt has not improved in quality since 2008, yet issuance has exploded with little perception that government debt is being mispriced, over-issued, and misdirected. There is an ever expanding gulf between market perceptions of ‘moneyness’ and the true underlying state of government credit. In simpler terms, government credit is a bubble, a precarious Credit Bubble at the heart of our monetary system. Just as the US financial system doubled total mortgage debt in just over six years during the mortgage/Wall Street finance bubble with little perception of the underlying quality of U.S. mortgage credit, the financial system is now on track to double federal debt in about four years. The situation is no different in Australia and I doubt it would be different in most other ‘developed’ countries.

There is only one true arbiter of the value of government debt, its only extinguisher… gold. Irredeemable dollars, being the obligation of the central bank – not money, cannot extinguish government debt. Is gold reflecting the expanding gulf between perceptions of moneyness and the true quality of government credit? Should holders be loaning their money – gold – for irredeemable government obligations, as if ‘buying’ mortgage credit at the height of the Wall Street bubble? Should the dollar price of gold be falling?

I think not. And we all know what happens to bubbles.

Note: 1. Remember, one person’s debt is another’s credit. I use the terms interchangeably.

Source - Australian Office of Financial Management (AOFM)

Source - Prudent Bear (prudentbear.com)

Disclaimer: The views expressed in the above article are the author’s own. They should not be interpreted as reflecting any views held by Senator Barnaby Joyce, The Nationals, or by the barnabyisright.com blog author.

* Stay tuned for JMD’s follow up post, on the Reserve Bank of Australia’s sale of 2/3rd’s of Australia’s gold during the Asian Financial Crisis of the late nineties.

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