skip to Main Content
thehousingbubble@gmail.com

They Were Addicted To The Excitement Of Dinero Fácil

A report from the Sydney Morning Herald in Australia. “An Erskineville apartment development remains a ghost town more than 12 months after it was completed, with the City of Sydney refusing to allow owners to move in over fears the developer did not properly clean up toxic land underneath it.”

“The Herald’s revelation that owners have been prevented from living in a fourth Sydney apartment building over safety concerns comes less than 24 hours after an emergency meeting between the state and federal governments over the country’s building standards crisis. The Sugarcube apartment building development in Erskineville has been delayed.”

“The Zetland, Mascot and Opal Tower apartments across Sydney have all been evacuated in the last 12 months due to major defects. The 109 ‘Sugarcube’ apartments, and 18 ‘Honeycomb’ terraces were built at the old Ashmore industrial estate in Erskineville, with construction finished in April 2018 according to promotional material.”

“Furious buyers who paid upwards of $1 million for a slice of ‘the sweet life’ have been left demanding answers over why they have been left in limbo. Some purchased off-the-plan as far back as early 2015. ‘All of our possessions are in storage or in bags and boxes,’ one man wrote. ‘We have had to extend our home loan SIX TIMES while we wait … it’s a joke. We can’t go on like this any longer.'”

The Australian Financial Review. “More than 200,000 properties in Melbourne and Sydney have slipped below the $1 million market since the end of the property boom triggered a record reversal in prices, exclusive analysis shows.”

“Top properties in popular postcodes were among the hardest hit. Median price falls in Sydney and Melbourne clipped between 11 and 14 per cent off property values, or about $136,000 in Sydney, according to analysis by Corelogic for The Australian Financial Review based on a survey of about 8.7 million households around the nation.”

“‘That’s because they were among the most overvalued,’ says Cameron Kusher, Corelogic’s senior research analyst.”

“But it was the former mining boom towns of Perth and Darwin that were hit the hardest, with respective falls of 30 and 20 per cent compared to a national decline of just over 8 per cent. Darwin’s percentage of $1 million properties has fallen from 5 per cent to 2 per cent in the past five years and there are no signs of a turnaround, according to market analysts.”

“The biggest percentage of falling million-dollar properties was 23 per cent in Melbourne, followed by 19 per cent in Sydney, despite there being more gilt-edged real estate in premium postcodes around the harbour. It is the biggest downturn since Corelogic began collating data in 1980. Across the nation more than 230,000 residential properties have fallen below the benchmark.”

“Despite this, Sydney and Melbourne’s median property prices are still among the highest in the world and about 60 per cent less affordable than booming Seattle and New York, global investment bank Morgan Stanley.”

The Times of London on Spain. “In 2006 I bought a home on the Catalan coast. To finance the purchase I arranged a mortgage with Banco Sabadell. I tried a British bank, but they proved painfully slow. My Spanish bank manager, Josep, found British bureaucracy hard to understand. ‘It’s not a difficult decision,’ he remarked. ‘You look at the house. Is it good? . You look at the borrower. Can he make the payments? . That shouldn’t take more than two days.'”

“At the time, Josep’s attitude seemed refreshing. The Spanish, I thought, could teach the British a lot about user-friendly banking. Thirteen years later, I’m not so sure. I was unwittingly part of the Spanish property boom, when the number of British homeowners in Spain topped one million. This was a time of dinero fácil — easy money — when mortgages were handed out like sweets. But then came the crash.”

“Property booms drive even the most sensible people gaga. Most Spaniards would have realised that the good times could not last, but they were addicted to the excitement of dinero fácil. Perhaps more than any other city, Valencia embodied the febrile exhilaration of the boom. ‘The city that borrowed more rashly, built more lavishly and invested more foolishly, than any other,’ says Tobias Buck, author of After the Fall.”

“Across the country, municipal and private authorities built extravagant museums, futuristic stadiums, lavish motor-racing tracks, oversized hospitals, unnecessary airports and, of course, ugly tower blocks. Yet only Valencia built them all. In truth, quite a few were never finished. They are skeletal monuments to economic folly.”

“When the crash came in 2008, a slump in the housing market quickly became a banking crisis and then a political calamity. But it was, most of all, a psychological crisis. A prosperous country suddenly became poor. Spaniards were rudely awoken from a very pleasant dream: ‘We thought we were rich, but we weren’t… We trusted our leaders, but they failed us. We trusted our banks, but they betrayed us.’ Everyday certainties dissolved into dust.”

This Post Has 134 Comments
  1. ‘Furious buyers who paid upwards of $1 million for a slice of ‘the sweet life’ have been left demanding answers…‘All of our possessions are in storage or in bags and boxes,’ one man wrote. ‘We have had to extend our home loan SIX TIMES while we wait … it’s a joke. We can’t go on like this any longer’

    Come on Man, it was cheaper than renting! Plus you paid one million Australian pesos for a good lesson.

  2. ‘Across the country, municipal and private authorities built extravagant museums, futuristic stadiums, lavish motor-racing tracks, oversized hospitals, unnecessary airports and, of course, ugly tower blocks. Yet only Valencia built them all. In truth, quite a few were never finished. They are skeletal monuments to economic folly’

    I posted many an article on Spain back then. IIRC, they built 11 huge airports that never opened. It was a spectacular flame-out.

    1. The horrific waste of natural resources and the destruction of this once-beautiful planet is, in my opinion, the worst side-effect of this central bankers’ QE orgy. Fawk ’em all.

      1. “…the wor$t $ide-effect of this central banker$’ QE orgy.”

        NO Per$onal Con$equence$, NO puni$hment$ … What should one have for “long.term” expectation$ regarding accountabilitie$?

        1. Could not link to your name below but let me draw you a map why Trump was right about wind turbines. Below is a link about all the studies negative side effects to wind turbines. Notice the sleep disturbances, numerous studies not connected to wind turbines have shown that things like working night shifts and thus disrupting sleep increase cancer risks. Because the study has not been conducted does not prove that Trump is wrong because the link between sleep disruption and cancer is clear:
          https://www.wind-watch.org/documents/infrasound-from-wind-turbines-an-overlooked-health-risk/

          1. Do the enviros who favor this green energy technology worry about all the birds that get whacked by those ginormous propellers?

          2. Good luck to endangered birds and bats flying through wind turbine farms!

            Jun 26, 2019, 2:40 am
            Why Wind Turbines Threaten Endangered Species With Extinction
            Michael Shellenberger, Contributor
            Energy
            I write about energy and the environment

            Wind Energy’s War on Nature

            In many countries, wind turbines pose the single greatest threat to bats after habitat loss and white-nose syndrome. In some places such as Texas, where white-nose syndrome, a deadly fungus, has only recently arrived, wind turbines are the single greatest threat to bats.

            And scientists say wind turbines are the single greatest human threat to migratory bats, which live in different habitats during summer and winter months. Some, like the hoary bat, fly south to Mexico during the winter as insects become more scarce in North America.

            In 2017, a team of scientists warned that the hoary bat, a migratory species, could go extinct if the expansion of wind farms continues.

          3. “Why Wind Turbines Threaten Endangered Species With Extinction”

            Let’s see wind.turbines or homo sapiens? … run critters, Run! The blades are coming! The spinning blades!

        1. And to connect to the other thread, for ultimate funnies they should power it with wind turbines.

  3. “Furious buyers who paid upwards of $1 million for a slice of ‘the sweet life’ have been left demanding answers over why they have been left in limbo. Some purchased off-the-plan as far back as early 2015.”

    I have some simple advice for these foot stompers: DON’T BUY OFF THE PLAN.

    1. Dumb observation: The willingness of investors to pay over a million Ausralian peso to purchase pre-construction condos, sight unseen, is a glaringly obvious indicator of an epic financial mania.

      1. “…indicator of an epic financial mania”

        If true, then cone$quence$ might manife$t themselves you think?

        Eye’$ wonder what could po$$ibly ari$e?

  4. “Top properties in popular postcodes were among the hardest hit. Median price falls in Sydney and Melbourne clipped between 11 and 14 per cent off property values, or about $136,000 in Sydney, according to analysis by Corelogic for The Australian Financial Review based on a survey of about 8.7 million households around the nation.

    That’s because they were among the most overvalued,’ says Cameron Kusher, Corelogic’s senior research analyst.”

    By that logic, California housing should soon be a cratering. Does anybody have any idea of how far behind Oz we are?

      1. And you haven’t even barely started adding demand for electricity from EVs to the equation.

        What a great excuse for confiscation of all powered transportation from private ownership, which will place the governments in complete control of where and how all of their citizens live and work.

        1. Big oil owns all of the transportation now so I am not sure if the government ownership is any better or worse. Big oil companies are just as dangerous as big government.

          1. Big oil cannot jail me or raise my taxes or prevent me from buying an electric car. Government influenced by green crony capitalists can restrict my ability to chose what is best for me.

          2. Eye have a Henry rifle answer to both Big Oil & Big Gubermint:

            “I’ll give you my solar.panel when you pry it from my cold, dead hands”

      2. You’re citing a website called “stopthesething.” I’m sure that’s an even-handed website.

        1. Then, refute the numbers. This is what the left loves to do, the MSM will not cover stories and then when conservatives bring on the story using alternative sources hollows these are not credible sources. Facts are stubborn things and they do not care who reports them.

          1. Australia to achieve 50% renewables by 2030 without government intervention, analysis finds
            The Guardian
            28 May 2019
            Paul Karp

            Australia is on track to achieve 50% renewable electricity by 2030 even without new federal energy policies, according to modelling by the energy analysts RepuTex.”

            “The analysis, to be released on Wednesday, suggests that a surge in renewable energy driven by state schemes and rooftop solar installations will reduce wholesale prices from $85 per MWh to $70 over the next three years.”

            “Lower prices will make gas- and coal-fired power less competitive, even without a market mechanism to make fossil fuels reflect the cost of pollution or a direct constraint on emissions, although a lack of federal policy could lead to longer-term price rises, RepuTex found.”

          2. We’ve gone over this before: the key to making renewables viable (since they are intermittent) is really good battery capacity and transmission mechanisms. Often times the high costs of renewables is due to “peaker plants” which have to be switched on when renewables aren’t reliable enough. Batteries solve the problem, and it appears that “pumped hydro” is going to be a battery on a massive scale. From the article:

            “As a result, fossil fuel generation is modelled to be more broadly on the decline, displaced by a large volume of solar, wind and pumped hydro.”

          3. Here is a fact: The giant battery system installed by Tesla in southern Australia cost $66M, but saved $40M in its first year of operation. It’s all about the battery technology. Even more interesting is the “Virtual Powerplant” being implemented in southern Australia:

            From The Verge article (I WENT TO AUSTRALIA TO TEST OUT TESLA’S VISION OF THE FUTURE):

            “Lower bills were a theme among the people I spoke to who’d had Powerwalls installed in the first portion of the plan. Sherallee Andrews, 58, told me that her bills ranged from $300 to $400 AUD quarterly before her 17 panels and Powerwall were installed in April 2018. Now, she says, the bills average around $12. Another customer, Victoria Townsend, 45, had 20 panels and a Powerwall installed in April 2018. “We noticed the benefits quickly over the summer,” she says. Her bills used to be $340 to $450 AUD quarterly, and now her statements appear as credits. The energy company owes her about $130 AUD, she says.”

          4. One, predictions about the future do not refute the actual facts. Last time I mentioned the rates in California the best you could come up with is the lame excuse that because California had great weather the ultimate bill was the same. True for coastal but not the rest of California and you cannot transport the weather. Why don’t you include the actual links to those stories perhaps as soon as you read the assumptions they make you know just how bogus the claims are? https://www.chooseenergy.com/electricity-rates-by-state/

          5. Hard dtRumpsis facts like: “their sound causes cancer?”

            “Kenya launches Africa’s biggest wind farm”

            Nick Perry |AFP |July 19, 2019

            – Turkana Corridor –

            The project lies in a natural corridor dubbed “the windiest place on earth” and promises to harness this endless power at low cost.

            The nearly-50 metre turbines were engineered to handle the fierce gusts that tear through the “Turkana Corridor”, a wind tunnel that generates optimal conditions, year round.

            The winds howling near constantly through the barren valley deliver double the load capacity enjoyed by similar projects in America and Europe
            The project, far more ambitious in scale than rivals elsewhere on the continent, has been closely watched as a case study of investing in renewables in Africa, where demand for energy is soaring as economies grow and populations swell.

            In Kenya — which relies heavily on hydropower and geothermal — power is unreliable and costly, hindering business as energy-intensive sectors such as manufacturing look to take off.

            Thee entire undeveloped global countries (9 Billion$ 660 Million$ want to grow just like America, 1910 … $hame.on.them!

            Of course The 1910 census included millions of “illegal non.citizens”/Residents right?

            “The Thirteenth United States Census, conducted by the Census Bureau on April 15, 1910, determined the resident population of the United States to be 92,228,496, an increase of 21.0 percent over the 76,212,168 persons enumerated during the 1900 Census”

          6. Why don’t you include the actual links to those stories perhaps as soon as you read the assumptions they make you know just how bogus the claims are?

            You mentioned California in your post regarding electricity. As you know, California has been ravaged by wildfires. PG&E has a $30 billion liability for their wildfires. Their transmission lines are causing fires and burning all the wealthy mansions built in places where they shouldn’t be. PG&E was going to have to declare bankruptcy, but it looks like they can’t. So the cost of wildfires is being passed on to ratepayers. That is just one reason why electricity is so expensive in CA.

            Here is the link to that story I quoted from:

            https://www.theverge.com/2019/6/25/18715585/tesla-australia-renewable-energy-houses-electrical-grid-battery-installation

            I didn’t include the link because I figured you aren’t likely to read it. But it is a really good article about the Virtual Power Plants being adopted by with Panasonic and Samsung batteries using Tesla technology at the grid level.

          1. “do you want to admit you are wrong now about dtRrump’s statement?”

            baaaahaaaahaaaaa …. Nix, as in … no.

          2. Honesty, did not think HWY 50 would admit he was wrong, most of the left never will, millions died in Cambodia after the communists took over the left ostracized the few among their movement who did admit they were wrong about the Khmer Rouge. YWY 50 a.k.a lefty it may be time to split for Ohio:
            https://www.bing.com/search?q=poncho+and+lefty+youtube&form=EDGEAR&qs=AS&cvid=7e69e62178554f44b07012d6db63412b&cc=US&setlang=en-US&elv=AXK1c4IvZoNqPoPnS%21QRLONXILs%21UFbnzKg4k7b5KH04LUWlMUfc7VhgC1%215qbT8AS0qo6h01YaiedP3fqCixd4tDGUv%219*ykOZdTkDLdmFH

          3. Ha, you know jack aqdan, …

            Bugs: “eh, he don’t know you very well do he? ” … Born in Ohio, right down the country road from all my leftie Amish cousins & me mums Irish drunk.drinking immigrant siblings.

            Stay in Fantasy.land aqdan, it’s suits you well.

          4. Abqdan, all the dissembling in the world doesn’t change the fact that solar and wind are basically free once you set up the infrastructure to take advantage of them.

          5. “Wow, wind turbines need no maintenance?
            Solar cells last forever!”

            Don’t forget my generous salary to operate this equipment!

          6. “Wow, wind turbines need no maintenance?
            Solar cells last forever!”

            wind$ + $olar + maintenance cost$ / Nuclear facilitie$ $elf.repairing annuitie$ dividend$ = Nuclear radiation half.life $torage …Win$!!!!

          7. Wow, wind turbines need no maintenance?
            Solar cells last forever!

            Compared to the continued cost of extraction and exploration for oil and nat gas, yes, practically free.

  5. “This was a time of dinero fácil — easy money — when mortgages were handed out like sweets. But then came the crash.”

    Any idea of how much longer the current easy money mortgage environment will last in the U.S.?

    1. First it was bonds, then stocks (still a secret). Next I fully expect homes to be bid from the trading desk of the Fed.

      Sickos

    2. “Any idea of how much longer the current ea$y money mortgage environment will last in the U. $.?”

      Perhap$ dtRump economic advi$or Mr. Kudlow can provide you with an an$wer to yer que$tion

    1. The US looks quite good compared to New Zealand and Canada. Some good observations in the comments: where is the data on China? The lack of reliable data is probably why it is not included. No doubt China would look very bad on many of these metrics.

      1. Chinbabwe is the biggest lie on this planet. Their money-printing makes the Weimar Republic look like a piker.

      2. The US looks good as a whole because most of the “heartland” is not in the bubble. If you isolated the US to the top 10 coastal cities, it would look very different.

        1. And one thing going for US is ‘slightly higher salaries’ compared to rest of the world.

        2. “heartland”

          Happy to know that American farmer$ are knot effected in any way bye these horrible price$.

        3. They most definitely ARE in the bubble, it’s just that prices look cheap as compared to the insanity of the coasts and major cities.

    2. Yes, I have posted similar graphs and I think they are a double edged sword. Yes, they show how the whole world is in a bubble and that the correction is going to be severe but they also show just how ridiculous prices can get when the governments are actively promoting the bubbles with their policies. It shows what MMT policies could do to inflate our already inflated housing prices.

  6. Should be required reading for every house buyer.

    “Spaniards were rudely awoken from a very pleasant dream: ‘We thought we were rich, but we weren’t… We trusted our leaders, but they failed us. We trusted our banks, but they betrayed us.’ Everyday certainties dissolved into dust.”

      1. They can drink more wine or just continue to whine it is their choice. But I think if they are going to stamp their feet, they should be crushing grapes it at least is productive.

      2. I still crack up at Beluche’s face when the words “and this morning it was gone” are spoken.

    1. By the sweat of your face you shall eat bread, till you return to the ground, for out of it you were taken; for you are dust, and to dust you shall return.

      Genesis 3:19

    2. “Should be required reading for every house buyer.”

      Bahahahahahaha … these pukes will not even read loan documents that will most assuredly condemn them to the richly-deserved status of debt slaves so why should one expect any of them to read any of your “required reading”?

    3. “Spaniards were rudely awoken from a very pleasant dream: ‘We thought we were rich, but we weren’t…”

      Not their fault.

      “We trusted our leaders, but they failed us.”

      Not their fault.

      “We trusted our banks, but they betrayed us.’”

      Not their fault.

      “Everyday certainties dissolved into dust.”

      None of this is their fault.

        1. Mr. Banker, I think there may be a legislative fix to any downside for you if the bubbles pop particularly in the commonwealth countries which seem particularly bubbly. Probably because modern day banking/robbery emanated from England. You need to have your legislative puppets bring back debtor’s prisons. Then when Canada, New Zealand and Great Britain’s bubble pop you can sentence those loanholders to prison. Now, you think I have forgotten Australia but no this is the best part, all those debtors can be sent to Australia and many of those condo projects there can be converted to prison facilities.

          1. And Mr Banker, I can turn you on to a job at McDonald’s when everything blows up. I like to help my friends out.

          2. “And Mr Banker, I can turn you on to a job at McDonald’s when everything blows up. I like to help my friends out.”

            Unfortunately, when everything blows up getting a job at McDonald’s is not going to be easy.

          3. Unfortunately, when everything blows up getting a job at McDonald’s is not going to be easy.

            I remember talking with some European international students and they were telling me how a job at McDonald’s is considered a really good job there, almost like a prestigious job. The pay is good, security is good, and benefits are good. This was like 20 years ago though and it was one guy in a hot tub when we a bunch of friends were chatting late one night.

  7. “The Herald’s revelation that owners have been prevented from living in a fourth Sydney apartment building over safety concerns comes less than 24 hours after an emergency meeting between the state and federal governments over the country’s building standards crisis.

    Rest assured: the true purpose of this meeting was to start formulating a CYA strategy to explain away why corrupt officials working in cahoots with crooked developers and REIC grifters aided and abetted massive, systemic fraud in the RE sector.

  8. “Despite this, Sydney and Melbourne’s median property prices are still among the highest in the world and about 60 per cent less affordable than booming Seattle and New York, global investment bank Morgan Stanley.”

    Not for long. The real schlonging hasn’t even started yet.

  9. My inlaws made a classic mistake, of buying a new place before selling the old one in a changing market, where nobody really has any idea of what fair market value is. I could have warned them not to do this, but I guess they decided their realtwhore knew what she was talking about. Now they are distressed about attracting no offers on the place they have to sell, despite askin $100Ks below what they could

      1. I think they already paid off the first place. Paid just over $300K way before the first wave of bubble collapse.

    1. Honestly, only if you can convince them not to. I remember just before the last bubble burst I talked a friend out of buying a condo in San Diego. I think the thing was selling for around $600,000. It would have been devastating for her. I came close to losing a friend because I was so adamant in my attempts to stop her. A mutual friend said I should just stop in my attempts. I knew that once I started if I failed, the friendship would be in trouble anyway, since no one wants anyone around who can say I told you so. I am glad I did it but I was shocked how hard it is to convince someone not to buy even when you have all the facts on your side and the person who you are trying to convince is very intelligent about economics. The emotions around home ownership are stunning.

      1. I had a similar experience, except that my friend went ahead and bought, on his wife’s urging. I don’t see him much these days, thanks to a job change. But I’m sure he lost a lot of time on the water dealing with a miserable real estate investment he didn’t need.

    2. “My inlaws made a classic mistake” & “I could have warned them not to do this” = Matrimonial Ri$k.

      1. They won’t be broke when they eventually do sell, but they may have overestimated how much to pay on the home they bought by not first testing what the market would bear on the home they want to sell. This would have made sense, as they are in the process of downsizing their household to a nearby community in order to reduce yard and housework demands.

        I thought there was a way to set up a purchase contract with a contingency clause for the sale of the home the buyer will leave behind, but apparently they did not pursue this approach.

  10. “Across the country, municipal and private authorities built extravagant museums, futuristic stadiums, lavish motor-racing tracks, oversized hospitals, unnecessary airports and, of course, ugly tower blocks…A prosperous country suddenly became poor.”

    Didn’t those who had the money, and lent it, become poor, while the Spanish ended up with lots of new housing and other facilities? Didn’t they become richer via what turned out to be a scam?

    Perhaps their bankruptcy laws aren’t what they should be.

    1. ‘Didn’t they become richer’

      Ha ha. I would like to know how many ‘ordinary’ people actually benefited from this. Government via taxes, maybe yes. Employment during construction boom, definitely yes….although very temporary. How the masses benefit in the long run from a scam designed by and for a select few….I would really love to know.

    2. “Didn’t those who had the money, and lent it, become poor, while the Spanish ended up with lots of new housing and other facilities? Didn’t they become richer via what turned out to be a scam?”

      +1 … Preci$ely!

      (Perhaps their bankruptcy laws aren’t what they should be.)

      Let$ get thee bidne$$ wizard, dtRumpsis to provide per$onal in$ight on that very que$tion!

    1. Do you think any of those abandoned projects could eventually be finished and used?

      I ask that because there was a huge condo project with commercial underneath that went belly up around 2008-2009. It sat for almost 10 years half-finished. It was an eyesore because it right on state street and it was half completed. The lenders who got the property from the developers made the property tax payments but just sat on it. They didn’t do anything with it and eventually the city got aggressive and passed some law that basically said, “Complete it or sell it to someone who will.” Well, about a year or two it did get converted to luxury apartments and I they are all rented out. It does seem like it turned out okay as a project, despite the original developers going bankrupt:

      http://midtown360.com/

      1. “Do you think any of those abandoned project$ could eventually be fini$hed and u$ed?”

        Ye$, what exactly happened @ all the “dead project$” of the Great.Debacle.2008? … Are 99% still in a $tate of continual deba$ement, or did Thee Wanker.Banker$ save the day for “new.investertations” of overpriced $helter.$hack debt.roache$?

    1. A total rebuttal of the Tesla’s battery in Australia is great, of course prior to the green Nazis Australia had a very stable grid. Also, yes you can reach 50% green power without overt subsidies. You just mandate it and make people the higher costs when they are not allowed to use coal or NG to generate electricity. However, it is just a subsidy by another method. The end result is the same, uneconomical electricity is produced.
      https://stopthesethings.com/2018/04/02/hype-power-renewables-zealots-claims-that-sas-mega-battery-saves-grid-pure-bunkum/

      1. ABQDan, do you work in the oil industry? Just curious what your penchant is for everything fossil fuel?

        I’ll never forget when my wife and I were having a discussion with a teacher friend about the Iraq war. We asked her opinion on the matter and she said, “Well, my dad makes bombs, so we’re for the war.”

  11. Housing is just one example of the abject failure of Keynesian Economics and nefarious central bank policies. Central banks = centrally-planned, command economic system. This benefits progressive gov’t. policies by funding socialist policies including social engineering via wealth redistribution. These are places that gov’ts. should never go, based on historical examples, e.g. former USSR, China, Cuba, Venezuela, and numerous failing states and territories of the U.S. (Puerto “Rico”, CA, NJ, IL, NY, etc.). It is wrong to interfere with free market economics, where free market means equal opportunity for all market participants; it doesn’t mean the crony-capitalism, trusts and monopolies that we have now; this just leads to the popularity of socialism, the growth of populism, and eventually, revolution if injustices and inequalities aren’t redressed through the political system. The central bank problem is global, as are the coming repercussions. AU is just ahead of the curve, but not by much. BTW, interest rates can’t go up much, because debt loads are extreme and any significant increase in interest rates will cause servicing costs to increase proportionately, effectively leading to default without further monetization. No escape.

    You Are Here
    John P. Hussman, Ph.D.
    April 6, 2019
    “The primary effect of extraordinary monetary policy wasn’t to drive real economic gains, but instead to amplify speculation and contribute to wealth and income disparities. “

    Bubbles and Hot Potatoes
    John P. Hussman, Ph.D.
    November 28, 2018
    “Put simply, the extraordinary and experimental policies of quantitative easing and zero interest rates have not been “good” except in the myopic sense of encouraging a short-term burst of very bad choices and misallocations of capital.”

    Paradigm Shifts
    Published on July 17, 2019
    Ray Dalio
    “1. Central banks have been lowering interest rates and doing quantitative easing (i.e., printing money and buying financial assets) in ways that are unsustainable. Easing in these ways has been a strong stimulative force since 2009, with just minor tightenings that caused “taper tantrums.” That bolstered asset prices both directly (from the actual buying of the assets) and indirectly (because the lowering of interest rates both raised P/Es and led to debt-financed stock buybacks and acquisitions, and levered up the buying of private equity and real estate). That form of easing is approaching its limits because interest rates can’t be lowered much more and quantitative easing is having diminishing effects on the economy and the markets as the money that is being pumped in is increasingly being stuck in the hands of investors who buy other investments with it, which drives up asset prices and drives down their future nominal and real returns and their returns relative to cash (i.e., their risk premiums).”

    “When interest rates go down (right side of the diagram), that causes the present value of assets to rise (left side of the diagram), which gives the illusion that investments are providing good returns, when in reality the returns are just future returns being pulled forward by the “present value effect.” As a result future returns will be lower.”

    Distortion
    By Sven Henrich on July 5, 2019
    “Everything central bankers have promised in the past 10 years has turned out to be wrong:
    The promised growth has never materialized. In fact this longest expansion in history is also the weakest. And it comes at a very steep price. 105% debt to GDP, highest corporate debt ever, most extreme wealth inequality since the Great Depression. And now we’re running trillion dollar deficits again, the entire economy is held up [supported] by debt expansion subsidized by cheap money.
    The Fed never met their inflation targets. The dot plot turned out to be a fantasy plot. And now they are looking to cut rates with only 225 basis points [2.25% FFR] to work with at the end of the cycle.
    They [the Fed] never normalized policies. For 30 years we’ve seen a consistent trend of lower highs in rates and lower highs in the Fed funds rate. Ever more debt and ever cheaper money is required to maintain the illusion of growth. Meanwhile global debt & wealth inequality have ballooned. Now let’s do it all over again.”

    A nation’s finances are not decoupled from the balance sheet. Debt (liabilities) must not be excessive with respect to assets. When debt gets to high, even sovereign nations default. History has shown this. MMT is just cover (propaganda) for the current high debt levels throughout the world. “Debt doesn’t matter” they say. Basic economics and history says otherwise, but that doesn’t fit the narrative.

    1. “’Debt doesn’t matter’ they say.”

      Bahahahahahaha … this is the same line I feed to my customers and, amazingly, they believe it.

    2. “BTW, interest rates can’t go up much, because debt loads are extreme and any significant increase in interest rates will cause servicing costs to increase proportionately, effectively leading to default without further monetization. No escape.”

      So let’s just continue to cut rates, injecting more fake money and debt into the system, right? This is insanity. Higher rates are the CURE. Sure, there will be defaults, but that’s how a normal economy works.

      1. CB-
        – I agree that normalizing rates is the solution to this central banker-induced hell we currently have. The natural rate would allow pensions and savers to make a decent return on their safe time deposit investments. What we’ll have instead: 1) Pensions are way underfunded (check), 2) Savers and retirees are deprived of a significant historical (safe) income stream (check).

        – Central banks continuing with more of the same will eventually end in Zimbabwe economics, but they’re a one-trick pony and that’s all they know.

        – Raising rates now by much now (50 bps is a token rate increase forecast for 7/31 by the Fed) will crash the system, but it’s going to crash anyway. Might as well have it happen sooner than later. Bring it on, IMHO. The Fed doesn’t want to be blamed for this and so they’re loathe to raise rates. These guys (and gals) are idiots. Based on historical precedent, the first rate cut by the Fed in the U.S. has been soon followed by a significant correction in the stock market. I don’t think it’s different this time.

        “There is no means of avoiding the final collapse of a boom brought about by credit (debt) expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit (debt) expansion, or later as a final and total catastrophe of the currency system involved.” – Ludwig von Mises

        1. “The Fed doesn’t want to be blamed for this and so they’re loathe to raise rates.”

          Ha, easy to bounce off the low.dive, … The high.dive is far more BRAVE!

          Going from 2.25% to ZERO%? = ea$y.pea$y

          Going from 7.5% to Zero%? = “We’re HERO’$!!!!”

  12. This site is probably pretty close to One:
    https://wattsupwiththat.com/2019/07/21/wind-farm-back-of-the-envelope-economic-analysis/
    My big picture point is that rent seekers now choose PC causes to fleece the taxpayers. Making homes more affordable for minorities and supporting green energy both flow from the knowledge that since these both have strong political support, people are willing to overlook the economics. Of course, by overlooking the economics of buying homes, minorities are the biggest victims with all taxpayers sharing in the pain. By ignoring the economics of energy, it is both ratepayers and taxpayers who suffer. Of course, the poor and working class are the most hurt since paying electric bills is more difficult for them. The winners are people in the .1 percent who actually make hundreds of millions and sometimes billions from these scams. The article names two but Tom Steyer is not mention but he should be. Previously, he made money in private prisons and coal companies. Now, there is more money being green so guess what he supports?

    1. Just one word as example: “Solyndra”.

      https://fortune.com/2015/08/27/remember-solyndra-mistake/
      Why the Solyndra mistake is still important to remember
      By Katie Fehrenbacher
      August 27, 2015
      “Solyndra of course is the once much-hyped solar panel startup that raised over a billion dollars from private investors and lost $5oo million of tax-payer funds, in the form of a loan backed by the DOE, when the company later went bankrupt.

      The loan program was created under the Energy Policy Act of 2005, but Obama’s stimulus plan first funded it. Loan guarantees basically says the government will pay back the loans to a company if borrowers can’t. In many cases, like in Solyndra’s case, the government also provided the loans as well, via the Federal Financing Bank.”

      Watch out when gov’t. picks winners and losers. Never free market, but too many opportunities for both public sector (gov’t.) and private sector (corp.) graft and corruption. Think CA high-speed train (to nowhere)… Moving to Galt’s Gulch soon.

        1. Peter Thiel was building it in the ocean. A Utopian libertarian paradise (Seasteading institute).

      1. Cash for clunkers taking perfectly good used cheap cars, and cheap insurance off the road and destroying them . especially in areas with little or no public transportation.

        1. Cash for Clunkers was 10 years ago. Now there is a new crop of clunkers on the road in my parts. For some of them, I’m surprised that the still run, much less being legal.

      2. Here’s an oil-related biodiesel scheme of the same magnitude:

        The Polygamist Accused of Scamming the U.S. Out of $500 Million
        Bloomberg
        Jesse Hyde & David Voreacos
        24 June 2019

        “On the afternoon of Aug. 23, 2018, federal agents fanned out across the Salt Lake City airport. They were looking for Jacob Kingston. He was 42, with short, dark hair and a salt-and-pepper beard. According to the IRS, Kingston had defrauded the U.S. government of more than a half-billion dollars, and now he was fleeing to Turkey. The agents feared that if he boarded KLM flight 6026, he’d never come back.”

        “Kingston is a member of the Order, the largest Mormon polygamist clan in the U.S. Authorities call it an organized crime group. Concentrated in Salt Lake City, its 10,000 members control more than 100 businesses in the West, including a casino in Southern California and a cattle ranch on the Nevada border. Closer to home, it runs a tactical arms company that specializes in semiautomatic weapons.”

        “In 2006, not long after Johnson and Kingston split up, Kingston graduated from the University of Utah with a Ph.D. in mechanical engineering. Former Order members say it was about that time that he and his father started talking about building a biodiesel plant on a ranch near Plymouth, Utah, on the Idaho border. Just a year before, Congress had created the Renewable Fuel Standard, which was designed to reduce reliance on foreign oil and cut greenhouse gas emissions. The law mandated that refiners such as Valero Energy Corp. or Exxon Mobil Corp. blend into their products at least 4 billion gallons of renewable fuels, like ethanol and biodiesel, with the number jumping to 7.5 billion gallons by 2012.”

        1. OMG. It was the left which promoted biodiesel not the oil companies now it is big oil’s fault that there is fraud in the program?

          1. Thee left + biodiesel

            Good thing those red.hat $80,000 mega.dualwheeled pickup truck drivers avoid those “family.farm” U.$ everytaxpayer$ un$ub$idized growed corn.ba$ed fuels when driving to their $tatefair$!

            Big.gubermint $ub$ide$ = Bad! … Sad.

        2. Look @ their mugs shots! … 1/2 a Billion$! … Based on that alone proves that the $harp.$uiters @ Thee Wanker.Banker$ & the FedRe$erve have such an ea$y time printin’ mo.monie$.

      3. “Watch out when gov’t picks the winners and losers.”

        This is especially true when they make dumb dumb choices. Sometimes I think of them as drunk devils who
        are puppets to the highest bidder. This is why you have to make government as small as possible.

    1. Maybe, just maybe, following a decade of highly distortionary command-and-control central bank stimulus, including targeted asset price inflation and historically low interest rates, the old rules of economic behavior no longer apply?

      1. You’d make a fine liewyer, you propo$e que$tion$ with which you already have the an$wer’$ in tow.

        1. It’s quite likely the several lawyers in my personal circle have influenced my communication style.

    2. I read that one last night. Good read. The data on minimum wage has always been nuanced, same goes for the Philip’s curve.

      Bernstein was an Obama/Biden economist, but his point on the effects of open trade echo what DJT has been saying:

      “Once again, these impacts didn’t just translate into just job losses; wages were hit, too. Between the late 1940s and the late 1970s, when production workers were relatively insulated from foreign competition, blue-collar manufacturing compensation more than doubled. By contrast, it’s grown only 5 percent since then.

      “Did the winners from trade — the multinational corporations that relocated production, the finance sector that made the deals, the retailers that profited from “the China price” — compensate the losers? Of course not. They argued that “everyday low prices” were reward enough.”

      “But not only did the winners fail to help the losers — say, through serious employment-replacement programs, robust safety net assistance, direct job creation, and investments to make our manufacturers more competitive — they instead used their winnings to invest in politicians to cut their taxes and write ever more trade deals favoring investors over workers.””

      1. “… they instead used their winnings to invest in politicians to cut their taxes and write ever more trade deals favoring investors over workers.”

        Yep.

        Like it, love it, want more of it.

      2. As far as I was concerned ,the touted benefits of Globalism/free trade was the biggest lie that was peddled to the USA in a century.

        The Lost of jobs was crushing, and the low wages were a crime.

        Further, that cheaply made junk from China wasn’t even worth the cheaper price.

        It was a big con job that industry pulled off. It was just pure greed. The USA was running great when prices tracked with wages and the employers invested in America, along with the work force.

        The politicans sold us out to big business, and they can’t even be considered USA companies anyway. They divorced themselves from the American worker yet wanted free rein to sell to us the crap. Try to get a customer service person on the phone that you can understand the strong accent.

        Yet, they don’t want to talk about what the real solutions are. It’s all about identity politics and commie takeovers.

        1. “It was a big con job that industry pulled off.”

          And they’re still doing it right now, more than ever.

        2. Further, that cheaply made junk from China wasn’t even worth the cheaper price.

          There is a famous economic study called “The High Cost of Free Parking.” It basically goes on to say what happens to cities when parking is free and it encourages too much pollution, congestion, traffic jams, etc. The same could be said of the high cost of cheap Chinese crap. The cost was monumental. Ross Perot was right.

    3. The War on Savers is in full swing!

      The Search for Yield
      By Terry Savage on July 16, 2019

      The stock market cheered signals that the Federal Reserve will cut interest rates this month. There was no complaint from politicians, who see low interest rates as encouraging economic growth. But what about savers? A decision to cut interest rates will send them on a search for higher yields, and encourage some to take risks they don’t understand in order to earn a bit more money.

      That’s understandable in a world where low yields — or even negative yields — mean that savers are actually punished for the virtue of having liquid cash and avoiding risk. If you think it’s a problem in the United States, consider Europe, where more than $10 trillion of government bonds carry a negative yield, as do most bank deposit accounts. And even some junk bonds carry a negative yield, demonstrating just how desperate people are to park their money somewhere!

      That means savers are actually paying a bank or company to hold their money because it’s the least risky choice available. For example, as I write this, German government 10-year bonds are yielding a negative 0.25%.

      In the United States, a the 10-year Treasury bond is yielding 2.12% (after having dropped to below 2% in previous weeks), while the three-month U.S. Treasury bill is yielding roughly 2.16%.

      Local banks often offer savers far less interest. According to Bankrate.com, the national average rate on a one-year CD is just 1%.

      Chicken Money

      Chasing higher yields often involves taking on more risk than you think. There’s a reason I coined the term “chicken money” many years ago. It’s the money that you simply can’t afford to lose — because of your risk tolerance or time horizon or personal financial situation.

  13. “Watch out when gov’t picks the winners and losers.”

    Compare Federal.gubermint all U.$. Taxpayer$ monie$ being handed out to: Corn farmer$, $oybean farmer$ … ver$es … Pecan growers in Georgia or mangoes in Puerto Rico.

    Ye$, it’s definitely choo$ing Winner$ & lo$ers, GO $unny Perdue!

Comments are closed.

Back To Top