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The Idea That You Can Print Growth And Solve A Structural Problem Of Excessive Debt With More Debt

A report from News.com.au on Australia. “Australia could be the ‘first domino to fall’ in a global economic crisis for the first time in its 200-year history, according to economist John Adams, Digital Finance Analytics founder Martin North and Irish financial adviser Eddie Hobbs, who argue Australia’s economy is looking increasingly similar to Ireland’s prior to the 2007 housing collapse.”

“Mr Hobbs slammed ‘daft’ Keynesian money printing policies for the idea that ‘you can print growth and solve a structural problem of excessive debt with more debt.’ ‘Those that avoided the GFC bullet unhappily ingested the vast ‘ misallocation of mispriced capital that has flowed from global central banks,’ he said.”

“‘Australia is top of the pile and is systemically significant. Much like Ireland ingesting mispriced capital caused by the aftermath of German reunification which stoked the Irish bubble, Australia has had a similar steroid after the GFC and precisely at the wrong time.’ Mr Hobbs believes Australia is ‘likely to be one of the first to crater’ in the ‘destiny with excessive debt that is coming, in the so-called everywhere bubble.'”

“AMP Capital chief economist Dr Shane Oliver said we had ‘heard these doom and gloom stories lots of times before.’ ‘We’re not like Greece or Ireland. It’s a huge difference.'”

From Nine News. “A local Melbourne council has come under fire over a ‘horrendous’ development which has left residents living just metres from an ugly grey wall. She no longer goes on her balcony, which is now almost within touching distance of the neighbouring development. ‘It’s just like I live in a jail,’ Betty Ma told A Current Affair.”

“Another resident, Anthony, said he feared the value of his apartment had plummeted as a result of the construction. The wall is approximately 3.4 metres from his balcony, and he has lost his view of the Brunswick skyline. ‘We put our faith in Moreland Council not to approve stuff like this,’ he said.”

From Domain News. “Capital city housing prices are falling faster than at any time in the past decade and a half, official figures show. Prices dropped 5.1 per cent on average across the eight capital cities over the year to the December quarter. This was a steeper decline than at any time since the ABS began keeping records in 2004, including during the global financial crisis when prices dropped 4.6 per cent annually in the March quarter of 2009.”

“Sydney prices fell 7.8 per cent over the past year, worse than the 5.3 per cent drop in the December 2008 quarter. Melbourne lost 6.4 per cent, eclipsing a 5.4 per cent fall in the December 2011 quarter.”

From ABC News. “Australian property values fell $133.1 billion in the December quarter, with capital city home prices down an average of 2.4 per cent across the nation.”

“‘Investors were a key driver of price growth through their upturns and the fall in investor demand is now underpinning the decline in prices,’ BIS Oxford Economics senior manager Angie Zigomanis said. ‘The weakness in prices and likely concerns about further falls will continue to play on purchaser sentiment through 2019, with further price falls in Sydney and Melbourne expected.'”

The Property Observer. “An Exmouth, WA residential land parcel has been sold for a 60% price reduction on its 2008 sale price. Originally listed in October 2018 with price guide of $109,000 the land holding sold on March 13 for $78,142. Marking a $130,000 price reduction on it’s 2008 sale price when it traded for $208,000.”

“It was unsuccessfully listed in 2013 and 2014 for over 150 days on each occasion. When listed during those years the holding had an asking price of $177,000 and $179,000. The median price for a home in Exmouth, WA is $405,000 according to CoreLogic.”

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  1. ‘We’re not like Greece or Ireland. It’s a huge difference’

    No Shane you’re not like Greece or Ireland. You’re more like China:

    ‘A local Melbourne council has come under fire over a ‘horrendous’ development which has left residents living just metres from an ugly grey wall. She no longer goes on her balcony, which is now almost within touching distance of the neighbouring development. ‘It’s just like I live in a jail’

    1. Looking at the pix in the article, I have to side with Betty Ma. They truly walled in the balcony.

  2. ‘Mr Hobbs slammed ‘daft’ Keynesian money printing policies for the idea that ‘you can print growth and solve a structural problem of excessive debt with more debt.’ ‘Those that avoided the GFC bullet unhappily ingested the vast ‘ misallocation of mispriced capital that has flowed from global central banks’

    It’s only the thousandth time it’s been summed up here, but well said.

    1. ” … inges$ted the va$t ‘ mis$allocation of mis$priced capital that has flowed from global central bank$”

      $urely the creator$ of such disburishment$ will bee puni$hed with per$onal penaltie$ for enabling this world.wide$ debacle, right?

    2. I would characterize Keynesian monetary policies as criminal rather than “daft,” but otherwise Mr. Hobb’s comments are spot on.

  4. https://www.oftwominds.com/blogmar19/exhaustion3-19.html
    The Coming Crisis the Fed Can’t Fix: Credit Exhaustion
    March 18, 2019
    Having fixed the liquidity crisis of 2008-09 and kept a perversely unequal “recovery” staggering forward for a decade, central banks now believe there is no crisis they can’t defeat: Liquidity crisis? Flood the global financial system with liquidity. Interest rates above zero? Create trillions out of thin air and use the “free money” to buy bonds. Mortgage and housing markets shaky? Create another trillion and use it buy up mortgages.

    And so on. Every economic-financial crisis can be fixed by creating trillions of out thin air, except the one we’re entering–the exhaustion of credit. Central banks, like generals, always prepare to fight the last war and believe their preparation insures their victory.

    China’s central bank created over $1 trillion in January alone to flood China’s faltering credit system with new credit-currency. Pouring new trillions into the financial system has always restarted the credit system, triggering renewed borrowing and lending that then powered yet another cycle of heedless consumption and mal-investment–oops, I meant development.

    The elixir of new central bank money isn’t working as intended, and this failure is now eroding trust in the central bank’s fixes. Central banks can issue new credit to the private sector and it can buy bonds, empty flats and mortgages, but no central bank can force over-indebted borrowers to borrow more or force wary lenders to lend to uncreditworthy borrowers.

    Let’s be honest: the entire global “recovery” since 2009 has been fueled by soaring debt. The [economic] output of more debt is declining, that is, every additional dollar of debt is no longer generating much in the way of positive returns. As with any stimulant, increasing the stimulant leads to diminishing returns.

    [1) Rising interest rates are kryptonite to entities (e.g. sovereign nations, GSEs, corporations, small businesses, households, etc.) with high or saturated debt levels; this eventually leads to defaults. History has shown this to be true, because of their inability to make increased loan payments at higher interest rates.
    2) Debt can’t keep expanding exponentially forever, just as in nature “trees don’t grow to the sky.” An entity’s balance sheet can’t have unlimited or even high liabilities vs. assets forever. A healthy entity balance sheet has assets that greatly exceed liabilities. This is the normal condition. In a normal, non-“financial matrix” world, an entity with high debt levels will see creditors demand higher interest payments to compensate for the proportionally lower credit rating and associated higher risk of default. Compare interest rates for prime vs. sub-prime borrowers, for example. Sub-prime borrowers will pay a much higher interest rate. If the debt isn’t reduced, and interest rates rise, the entity will eventually default due to its inability to make higher interest payments.
    3) Debt is future spending pulled forward into the present. When debt levels become saturated, then present spending declines and there’s no source of financing for future spending, since current income is used for interest payments on the debt. This leaves an spending/consumption “air pocket” in the future. There’s no way to avoid this once debt levels saturate, or self-limit.
    4) The Fed and other central banks have massively intervened in the financial markets, resulting in highly distorted traditional pricing mechanisms. This has led to – as is their intention – malinvestments across a wide swath of asset classes. For example, ultra-low interest rates stimulate a chase for yield by investors into high-risk and speculative assets, which are mostly inappropriate. Risk premiums are suppressed by these distortions and no longer signal high risk investments to market participants. Savings is discouraged, if not eliminated, since rates are kept near zero, which penalizes retirees, pensions, and other conservative investors seeking a safe return on their investment. This situation is obviously not sustainable and the unintended consequences and outcomes are likely to be severe.]

    Then there’s the issue of debt saturation and debt exhaustion: those who are creditworthy no longer want to borrow more and those who are not creditworthy cannot borrow more, unless lenders want to eat the losses of default a few months after they issue the new loan.

    The evidence is plain enough: defaults of student loans and auto loans are already at monumental levels, and the recession hasn’t even started. Zero-percent financing for vehicles is a thing of the past, and those borrowers with average credit ratings are paying 6% or more for a new vehicle loan. Coupled with the ever-higher prices of vehicles, this is leading to auto loans of $600 and $700 a month and lenders extending the duration of the loans from 5 to 7 years. Just how badly do households need a new vehicle at these rates and prices?

    As for housing–unless the buyer just sold a house in a bubblicious market and has hundreds of thousands of dollars in cash, housing is out of reach of the bottom 95% in many markets.

    This raises the other dynamic of credit exhaustion: the whole exercise of buying a home or dumping more money in stocks is ultimately based on greater fools arising who will pay substantially more that the buyer paid today.

    Greater fools generally depend on credit to finance their purchase, and so the erosion of creditworthy borrowers means the pool of greater fools willing and able to pay $1.2 million for the old bungalow someone paid $1[.0] million for today is drying up fast.

    Only a fool buys an asset that is poised to lose value as the pool of future buyers dries up. No wonder insiders are selling stocks like no tomorrow, and housing markets have become decidedly sluggish: the pool of qualified borrowers who are willing to bet on another decade of central-bank goosed “growth at any cost” is shrinking rapidly.

    The next crisis won’t be one of liquidity that central banks can fix by emitting additional trillions; it’s a crisis that’s impervious to central bank manipulation. The credibility of central banks is already evaporating like spilled water in July-baked Death Valley.

    Central banks cannot magically make uncreditworthy borrowers creditworthy or magically force those who have forsworn adding more debt to borrow more at high rates of interest, and as a result they are powerless to stop the tide of credit from ebbing.

    Thus will end the central banks’ bombastic hubris and the public’s faith in central banks’ godlike powers, the “global growth” story, the China story, and all the other fairy tales that have passed as policies for the past decade rather than what they really were: politically expedient cover for the greatest expansion of inequality in modern history.

  5. People are stupid. Here’s a good example …

    Is There Any End to Our Obsession with Elizabeth Holmes? | Vanity Fair
    https://www.vanityfair.com/hollywood/2019/03/elizabeth-holmes-theranos-documentary-the-inventor-hbo-gibney

    And here’s a snip …

    “The Inventor is the string of journalists who appear in the film, the same people who have long had a hand in telling this story—some of whom were responsible for building up the Holmes mythos, despite the lack of proof that Theranos’s technology actually worked. When Holmes lied, she lied to the press, not simply the public. And she lied in a way that, as the documentary suggests, was par for the course in Silicon Valley. This is a culture predicated on making the impossible seem possible, buttressed by investors whose willingness to throw themselves behind people like Holmes suggests that, like the rest of us, they are often as attached to a good story and a charismatic personality as they are to what the numbers say about how to invest.”

    Read and weep.

    1. B…b…but she wore a black turtleneck sweater, like Steve Jobs. That meant she was some kind of visionary genius. Plus she had Henry Kissinger and a slew of neocon luminaries on her Board of Directors, so with a brain trust like that, how could I not invest my entire life savings?

      Baaaaaaaa! Baaaaaaaaa!

    2. I never saw too many people cheerleading her or building her up, it was quite the opposite. Maybe it’s the media I read but I saw too many “They hate me cause they ain’t me” from the company. “Does this thing actually work” is one of the main questions she constantly deflected, and now her scam is all over.

      BTW: Alex Gibney makes some great documentaries. Going Clear, Enron and Catching Hell are phenomenal

    1. The poorer you are, the more you spend in housing costs. Seems like a no-brainer, but this is probably both cause and effect. The take-away for the poorest is to reduce your housing costs as much as within your power until you can get into a different wealth decile.

  7. This was posted on the previous thread last night:

    “I have been an appraiser for over 45 years. Both commercial side and residential side. The residential appraiser is doomed as of Dodd Frank. They basically stated no one but certified appraisers could do work. At this point the number of appraisers has dropped to ridiculously low levels. You cannot build a firm nor make sense of an office environ. The government in an effort to keep the banks from pressuring the appraiser made Appraisal Management Companies act in between. The fees are no through the roof. $500-$600 per house. Pre DF they were about $300. The AMC’s put their snoots in the trough and sucked out all they could. At this point the appraiser gets $225-$275 and is told to hit a 2-3 day turn around. Then the lender dictates all these stupid stipulations they want answered to cover their azzes. Most are foolish and are regurgitating the data which is obviously in the report if one can read them. The reports go through several levels of review and then the dat in them is fed to the government for stockpiling. They are building a database from the appraiser’s work product which by the way is a violation of confidentiality and a couple of other things in our code of Conduct. But the rules are different aren’t they. Now the best part. Let’s say that based upon years of practice you raise an issue or fifty with the lenders request, through the AMC you are blacklisted for being a problem child. In other words for good sense and practice you are cut-off. The bank says, not us, the AMC uses who they want to use. All the while the Bank is calling the shots hiding behind the AMC’s. To that I had a job wherein I told them the value was not there and I would not waste my time nor the borrowers money. The AMC rep. said, “no worries we’ll find someone who will do it.” He meant hit the number. They did just that as he called me to let me know. I no longer work for them and I am glad to have fired them. The question was raised as to how the appraisals all come in so close to contract price. Some appraisers are lazy and others are good. The government makes the agents supply the appraiser with the contract. I never run that into a PDF until I finish my report. At times I nail it. In fact most of the time I am within 5 % of the purchase price. Sometimes I am way off the contract price and I call it as I see it. I double work these to see if I missed something but usually it is a situation wherein there was a bidding contest. This is a bad thing to allow. Once a contract selling price is set at listing it should be the first to hit the number gets the house but the Realtors like to set up a damn casino and they keep letting the price rise while dumbazz buyers compete. This is a huge red flag and one of the reasons we get into boom cycles. Prequalification is another issue as far as I am concerned. It is like the house gives you so many chips and you keep bidding till you run out of chips. And there is a problem too as the Realtors drive up the prices. I am worn out with the whole process and with the evident lack of dedication on the part of lenders and government. I will say it as most people are loathe to come right out with it. The difference between now and 2007 is 12 years. Every other aspect is right back where we started. In fact banks claim that appraisers are so in demand they can’t get timely appraisals and they should get a pass of a true appraisal. The government is giving blanket relief to them and no appraisal is required. By the way most sales have dried up and all we are seeing is refi’s. Another great sign. If I were a sheep dog I would eat the sheep and save them the pain of waiting.”

    1. “Once a contract selling price is set at listing it should be the first to hit the number gets the house but the Realtors like to set up a damn casino and they keep letting the price rise while dumbazz buyers compete.”

      Don’t knock it, this is how wealth is created.

      “This is a huge red flag and one of the reasons we get into boom cycles.”

      Wrong. It is a modern miracle.

      “And there is a problem too as the Realtors drive up the prices.”

      Again, the miracle of wealth creation.

      “In fact banks claim that appraisers are so in demand they can’t get timely appraisals and they should get a pass of a true appraisal.”

      So, what?, you are suggesting that bankers lie?

      😁

      “The government is giving blanket relief to them and no appraisal is required.”

      (yawn) again, we are back to discussing the process of wealth creation.

      1. For each dollar of a price increase for a house that is sold one dollar of equity wealth is created for the comps. If there are fifty comps then a total of fifty dollars of wealth is created. If the number of comps is one hundred then one hundred dollars of wealth is created. But this one dollar amount is not all that realistic; Let’s get real for a moment and see what happens in a bidding war when the price of the house jumps up by, say, fifty-thousand dollars.

        A price rise of fifty-thousand dollars for one house will magically produce $2,500,000 of equity wealth if there are fifty comps and it will magically produce $5,000,000 of equity wealth if there are one hundred comps.

        There are a whole lot of people who have a great interest in making this miracle happen and few people who don’t.

    2. “Prequalification is another issue as far as I am concerned. It is like the house gives you so many chips and you keep bidding till you run out of chips.”

      Which means the puke with the most chips ends up setting the price for the house and thus creating lots of wealth for the neighbors that just happen to live in the area.

      Oh, and as for those who kept bidding until they ran out of chips? They too played their part in this mass wealth creation event because it was their bidding that forced the price up. Without their bidding the highest bidder would have gotten the house for a lower price and all the financials of all the neighbors would have suffered as a result.

      So the unsung heros in this matter are the bankers who were gracious enough to prequalify the bidders.

    3. “In fact most of the time I am within 5 % of the purchase price.”

      And there’s the problem.

  8. Reserve urges ‘stingy’ banks to open up the credit floodgates
    The Australian-48 minutes ago
    … Michele Bullock has urged the nation’s “stingy” banks to “loosen up” their lending practices amid the slowdown in Australian housing and credit markets.

    1. Markets
      Bitcoin Is in the Dumps, Spreading Gloom Over Crypto World
      The value of all cryptocurrencies outstanding is down 85% from peak and volumes on U.S. exchanges have been falling; making it through ‘winter’
      By Paul Vigna
      Updated March 19, 2019 7:13 p.m. ET

      Bitcoin is in the longest slump of its 10-year history. That is forcing even its most ardent supporters to shelve dreams of global disruption and focus on simply tightening their belts long enough to outlast the downturn.

      Signs of the crypto winter are everywhere, marking a sharp reversal since the manic highs of 2017. The price of bitcoin Tuesday was just below $4,000, down about 80% from a trading peak of about $19,800 in December 2017. The total market value of all cryptocurrencies outstanding is down 85% from its peak…
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      https://www.wsj.com/articles/bitcoin-is-in-the-dumps-spreading-gloom-over-crypto-world-11552927208

  11. ‘you can print growth and solve a structural problem of excessive debt with more debt.’

    Based on recently announced central bank stimulus measures, the hair-of-the-dog debt hangover cure remains in fashion.

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