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Insidious housing Ponzi has trapped government (Read 1295 times)
Unforgiven
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Insidious housing Ponzi has trapped government
Mar 22nd, 2017 at 8:38am
 
The housing Ponzi scheme is so big and so insidious the government cannot allow its collapse.

If the housing Ponzi collapses, the banks will go with it because they are so embedded. If there is a major housing collapse, not only will there be huge numbers of bankruptcies of investors, but bank earnings, dividends, and share prices will fall severely which will affect the stockmarket and superannuation funds for many years.

The Autralian housing Ponzi-fuelled economy is a roller coaster out of control.

http://www.abc.net.au/news/2017-03-16/super-for-housing-deposits-intergeneration...

Quote:
Housing on shaky foundations

It rests on the shaky foundations of record and still rising household debt, much of which is sourced by Australia's banks from overseas.

Holding up those foundations are the hunched backs of households burdened by one of the largest household debt-to-income ratios in the world at 187 per cent, and the confidence of faceless foreign investment houses who are lending to those households, mainly via the big four banks.

Edge of a cliff? Housing in 2017

There are plenty of forecasts around the Australian housing market in 2017 - and few are positive.
At some point a straw will break that back - it could be an international event that causes the foreign investors to rapidly withdraw their financial support, or a domestic economic deterioration.


One reason the major banks have put forward for opposing a royal commission is that it could undermine confidence in Australia's banking system.

If they were confident in their business practices, surely they would have little to fear?

However, a wide-ranging royal commission might expose to the world at large the true scale of lending to people who can't really afford to borrow the money.

Australian property Ponzi

So, if the property ladder is wobbly, why would our national leaders encourage us to start climbing it?

It all makes perfect sense if you view the current Australian property market as sharing many of the traits of a Ponzi scheme (prime example Bernie Madoff).

A Ponzi scheme is an investment where profits for the early investors come from getting more new investors to put money into the pyramid.

Those at the top thus can jump off with a profit. Those lower down need to find a new and even bigger group of investors to get on board to earn their profit.

These schemes don't earn any, or much, income from the funds invested. The returns are simply based on more and more people putting money in.

The Australian property market has been exhibiting a growing likeness to such as scheme, where the income from rental is nowhere near enough to cover the costs of the debt most people need to buy in, especially in Australia's two biggest cities.

This is measured through rental yields - the annual return an investor gets from tenants relative to the purchase price - which are at record lows below 3 per cent for houses in Sydney and Melbourne.

If you're an investor and not making a profit from rent then you must be hoping that the value of the property will increase.

The only way this happens is if demand keeps growing - i.e. more people keep entering the market to pay higher prices to get onto the bottom of the ladder.

Hence why the Australian property market has Ponzi features.

Final act of intergenerational theft?

Of course, a Ponzi scheme collapses as soon as people realise what it is and want to get their money out or when it simply runs out of enough new recruits to keep the profits flowing for existing investors.

That is why using super for deposits could be cynically viewed as the latest, and potentially greatest, intergenerational theft by the baby boomers from generations X, Y and Z.

You see, many baby boomers didn't take their profits from the earlier stages of the property Ponzi, not recognising it as such.

Instead these investors doubled down on their bets, or much more in many cases, expecting property price rises to last forever.

Allowing first home buyers to access their super for a deposit will create a fresh pool of buyers.

Forget affordability, Michael Janda asks why the hell anyone in Gen Y would want to buy a home right now.
That will prop up the Ponzi for a while, and allow many of the cannier investors to jump out with a big profit - at the expense of young first home buyers.

Thus we could be left with thousands of formerly investment apartments in the hands of first home buyers, just as Australia's big cities enter a widely acknowledged apartment glut.

When the smart investors have left and most young people who can buy have been enticed into it there will be no fresh pool of buyers to prop up the Ponzi and it will fall down, either slowly or spectacularly.

The smart boomers will walk away with the biggest profits, having been in the market the longest, while recent younger buyers will be left with more housing debt than equity and no superannuation either.

Thus the intergenerational transfer will be complete.
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« Last Edit: Mar 22nd, 2017 at 8:45am by Unforgiven »  

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Re: Insidious housing Ponzi has trapped government
Reply #1 - Mar 22nd, 2017 at 8:53am
 
Last Nail?
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Re: Insidious housing Ponzi has trapped government
Reply #2 - Mar 22nd, 2017 at 8:57am
 
Mark Latham introduces the population Ponzi as a fuel element of the housing Ponzi.

Immigration is inflating the GDP without producing any benefit for the Australian population in general.

In the current unemployment environment of no job growth, Australia is importing unemployment and creating an underclass of immigrants who will face poverty all their lives.

http://www.macrobusiness.com.au/2017/03/mark-latham-demolishes-australias-popula...

Quote:
Mark Latham demolishes Australia’s population ponzi

Former Labor leader, Mark Latham, gave a stirring speech yesterday at the Sustainable Australia party’s community forum, “Housing Affordability: An Honest Debate”, which was held in Sydney.

In the speech, Latham argued logically against the mass immigration ‘Big Australia’ policies endorsed by all of the major parties, which are making ordinary Australians worse-off and pushing-up the cost of housing in the big cities.

Below are some of the key quotes:

“I don’t think you need to be John Maynard Keynes to work out that if you lower the demand for housing by cutting the immigration program, you do something to stabilise the price of housing or even bring it down. It’s a simple proposition… Year 11 economics: the first thing they learn about is supply and demand….

What we get in Australia at the moment in the great debate about housing affordability is only half the story. Because just about the entire system… focuses on the supply-side. And there’s a big debate about how we can build more housing… But what about demand? Sydney has 80,000 extra residents per annum. Melbourne has 90,000. And it’s mainly fueled by Australia’s 200,000-plus immigration program each year. And per head of  population around the world, we run the biggest immigration program in the West. In the Western World, we have the biggest immigration program per capita.

So wouldn’t it just be plainly logical to put the demand for housing as part of the equation when considering affordability?

So why the cone of silence?…  Why doesn’t anyone talk about the common sense in bringing down the biggest immigration program to give some relief on housing prices and relief on home buyers?

Well, it’s a classic case of a convergence of vested interests… You’ve got the two main tribes of left and right agreeing they won’t discuss immigration, they won’t discuss a cut to population as a way of improving housing affordability. And then you’ve got more naked vested interests in the system.

You’ve got the left-wing attachment to open borders… they support Big Australia for that reason.

For the Labor and Liberal parties… a big migration program they weaponise for ethnic branch stacking…

The property and housing industries, of course, they want more people coming in as that’s more money as you build the houses and you develop the property.

Big retailers, they love Big Australia, as they get more people walking through the door to buy their goods – easy money. The financial sector, the home loans…  The big advertising industry of course… they make money out of it.

The Department of Treasury in Canberra is very much pro-immigration and a Big Australia… because it’s a good way for Australia to achieve economic growth… Australia’s had 25-years of economic growth. But the truth is, in recent times, Australia’s growth has been sustained by the big immigration program. It hasn’t been sustained by productivity and competitiveness… We sustain our GDP figures artificially. Per head of population we are not going so great… Politicians love the idea of artificially inflating GDP figures, so that also sustains the Big Australia, big immigration program ethos

So you see right across the political system advocates… Just look at the supply-side of housing, don’t look at the immigration… But in the outer suburbs, all this urban sprawl and congestion has made life dysfunctional in terms of getting around… There’s housing estates popping out of the ground like mushrooms. They’re everywhere. So there’s lots of supply, but it’s not keeping up with the demand. The fact that we are adding 80,000 people to Sydney every year is being driven by immigration… The inner-city Big Australia advocates have no idea about how dysfunction life is becoming in the outer-suburbs… This is a big drain on economic efficiency [as well as] social efficiency…

For people in Western Sydney, quite frankly, you leave home in the dark, you get home in the dark, they don’t see their property in sunlight for most of the year. These traveling times are horrendous. And the supply-side fetish of ‘just build more housing estates’ is making Sydney dysfunctional…

So the more sensible thing to do is find an immigration program for the people who live here… Have a ‘nation-first’ immigration program for the benefit of the residents of Australia. And that program would be defined on a big cut from 200,000-plus to about 50,000 a year… which would be a wonderful stabilising influence on housing prices, stabilise some of the urban sprawl and inefficiency, it’s a logical solution.

But because of all these vested interests – it really is a collaboration – screwing over people in the suburbs, we don’t even hear this part of the political debate, which is a dreadful shame”…
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Re: Insidious housing Ponzi has trapped government
Reply #3 - Mar 22nd, 2017 at 8:59am
 
Last Nail?
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Re: Insidious housing Ponzi has trapped government
Reply #4 - Mar 22nd, 2017 at 9:12am
 
[quote author=Unforgiven link=1490135914/2#2 date=1490137072]Mark Latham introduces the population Ponzi as a fuel element of the housing Ponzi.

Immigration is inflating the GDP without producing any benefit for the Australian population in general.

In the current unemployment environment of no job growth, Australia is importing unemployment and creating an underclass of immigrants who will face poverty all their lives.


http://www.macrobusiness.com.au/2017/03/mark-latham-demolishes-australias-popula...

[quote]Mark Latham demolishes Australia’s population ponzi

Former Labor leader, Mark Latham, gave a stirring speech yesterday at the Sustainable Australia party’s community forum, “Housing Affordability: An Honest Debate”, which was held in Sydney.

In the speech, Latham argued logically against the mass immigration ‘Big Australia’ policies endorsed by all of the major parties, which are making ordinary Australians worse-off and pushing-up the cost of housing in the big cities.

Below are some of the key quotes:

“I don’t think you need to be John Maynard Keynes to work out that if you lower the demand for housing by cutting the immigration program, you do something to stabilise the price of housing or even bring it down. It’s a simple proposition… Year 11 economics: the first thing they learn about is supply and demand….

What we get in Australia at the moment in the great debate about housing affordability is only half the story. Because just about the entire system… focuses on the supply-side. And there’s a big debate about how we can build more housing… But what about demand? Sydney has 80,000 extra residents per annum. Melbourne has 90,000. And it’s mainly fueled by Australia’s 200,000-plus immigration program each year. And per head of  population around the world, we run the biggest immigration program in the West. In the Western World, we have the biggest immigration program per capita.

So wouldn’t it just be plainly logical to put the demand for housing as part of the equation when considering affordability?

So why the cone of silence?…  Why doesn’t anyone talk about the common sense in bringing down the biggest immigration program to give some relief on housing prices and relief on home buyers?

Well, it’s a classic case of a convergence of vested interests… You’ve got the two main tribes of left and right agreeing they won’t discuss immigration, they won’t discuss a cut to population as a way of improving housing affordability. And then you’ve got more naked vested interests in the system.

You’ve got the left-wing attachment to open borders… they support Big Australia for that reason.

For the Labor and Liberal parties… a big migration program they weaponise for ethnic branch stacking…

The property and housing industries, of course, they want more people coming in as that’s more money as you build the houses and you develop the property.

Big retailers, they love Big Australia, as they get more people walking through the door to buy their goods – easy money. The financial sector, the home loans…  The big advertising industry of course… they make money out of it.

The Department of Treasury in Canberra is very much pro-immigration and a Big Australia… because it’s a good way for Australia to achieve economic growth… Australia’s had 25-years of economic growth. But the truth is, in recent times, Australia’s growth has been sustained by the big immigration program. It hasn’t been sustained by productivity and competitiveness… We sustain our GDP figures artificially. Per head of population we are not going so great… Politicians love the idea of artificially inflating GDP figures, so that also sustains the Big Australia, big immigration program ethos

So you see right across the political system advocates… Just look at the supply-side of housing, don’t look at the immigration… But in the outer suburbs, all this urban sprawl and congestion has made life dysfunctional in terms of getting around… There’s housing estates popping out of the ground like mushrooms. They’re everywhere. So there’s lots of supply, but it’s not keeping up with the demand. The fact that we are adding 80,000 people to Sydney every year is being driven by immigration… The inner-city Big Australia advocates have no idea about how dysfunction life is becoming in the outer-suburbs… This is a big drain on economic efficiency [as well as] social efficiency…

For people in Western Sydney, quite frankly, you leave home in the dark, you get home in the dark, they don’t see their property in sunlight for most of the year. These traveling times are horrendous. And the supply-side fetish of ‘just build more housing estates’ is making Sydney dysfunctional…

So the more sensible thing to do is find an immigration program for the people who live here… Have a ‘nation-first’ immigration program for the benefit of the residents of Australia. And that program would be defined on a big cut from 200,000-plus to about 50,000 a year… which would be a wonderful stabilising influence on housing prices, stabilise some of the urban sprawl and inefficiency, it’s a logical solution.

But because of all these vested interests – it really is a collaboration – screwing over people in the suburbs, we don’t even hear this part of the political debate, which is a dreadfu
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Re: Insidious housing Ponzi has trapped government
Reply #5 - Mar 22nd, 2017 at 9:15am
 
Quote:
Immigration is inflating the GDP without producing any benefit for the Australian population in general.

In the current unemployment environment of no job growth, Australia is importing unemployment and creating an underclass of immigrants who will face poverty all their lives.


But you're all for this immigration wave and importation of higher unemployment & welfare are you not?
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Re: Insidious housing Ponzi has trapped government
Reply #6 - Mar 22nd, 2017 at 9:15am
 
The population Ponzi. An element of the housing Ponzi.

The government is trapping itself by not expanding infrastructure as population grows. Its going to be much more expensive to fix later.

Eventually all new infrastructure will be user pays basis.

http://www.macrobusiness.com.au/2017/02/australia-cant-build-way-population-ponz...

Quote:
Australia can’t build its way out of population ponzi
By Unconventional Economist in Australian Economyat 12:45 pm on February 24, 2017 | 31 comments
By Leith van Onselen

The full speech that Ken Henry gave to CEDA yesterday has been released, and Dr Henry pulled no punches in admonishing the Government’s negligence in managing Australia’s mass immigration program. Below are the key highlights:

In the broader community, there is considerably less support for a larger population.  People are concerned about the impact of a growing population on traffic congestion, urban amenity, environmental sustainability and housing affordability.  And they worry about our ability to sustain Australian norms of social and economic inclusion.  These concerns are understandable…

Even with strong growth in the size of government and public debt, we do not have the infrastructure capacity to support today’s population, far less the population of the future.

How will we fund the biggest infrastructure build in our history? And what about infrastructure planning?…

On the basis of official projections of Australia’s population growth, our governments could be calling tenders for the design of a brand new city for two million people every five years; or a brand new city the size of Sydney or Melbourne every decade; or a brand new city the size of Newcastle or Canberra every year.  Every year.

But that’s not what they are doing.  Instead, they have decided that another 3 million people will be tacked onto Sydney and another 4 million onto Melbourne over the next 40 years.

Already, both cities stand out in global assessments of housing affordability and traffic congestion.

And even if we do manage to stuff an additional 7 million people into those cities what are we going to do with the other 9 million who will be added to the Australian population in that same period of time?  Have you ever heard a poltical leader addressing that question?  Do you think anybody has a clue?…

At the very least, we are going to have to find radical new approaches for infrastructure planning, funding and construction.  And that includes energy infrastructure, critical to our economic performance and our quality of life.

The Productivity Commission’s (PC) final report on An Ageing Australia: Preparing for the Future projected that Australia’s population would balloon to 38 million people by 2060 (mostly via immigration) and warned that total private and public investment requirements over the 50 year period are estimated to be more than 5 times the cumulative investment made over the last half century:

Then in its recent Migrant Intake into Australia report, the PC warned that:

Governments have not demonstrated a high degree of competence in infrastructure planning and investment. Funding will inevitably be borne by the Australian community either through user-pays fees or general taxation.


Blind Freddy can see that running a high immigration program requires massive investment and costs a lot. Australia’s governments have failed dismally on this front, preferring to take the sugar hit from added demand while leaving the problems to be solved down the track on somebody else’s watch (i.e. never).

Unfortunately, Ken Henry stopped short of calling for a lower and more sustainable immigration intake, which surely must be part of the solution. Because as it stands, Australia cannot possibly hope to build enough infrastructure to supply a Canberra-worth of new residents each and every year for decades to come.
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Re: Insidious housing Ponzi has trapped government
Reply #7 - Mar 22nd, 2017 at 9:28am
 
Housing prices have no relationship to any other economic factor.

Housing debt is 120+% of GDP.

...

https://www.crikey.com.au/2016/07/29/australias-property-market-in-mother-of-all...

Quote:
How have we reached this absurd point?

The main driver of housing prices remains the taxpayer-backed big four banks, whose balance sheets are so overloaded with housing debt that they have no choice but to keep the charade going as long as possible. Bank executives are paid based on profitability and shareholder return — short-term profitability, that is. The fact that a chunk of the loans being made are based on prices that bear no real semblance to a discounted cash flow valuation is seemingly unimportant. Eventually the music will stop, but by then, bank CEOs will have been paid $50 million and the clueless directors who allowed it all will be frantically checking the terms of the indemnity insurance.

House prices are no longer a function of value but rather of how much people are prepared to pay. That in turn is determined by how much banks are willing to lend. And that amount continues to rise. Before the current boom started in 1997, the ratio of household debt to GDP was around 40% — it’s now more than 100 percent (it’s the same story for household income to household debt). In short, the banks are lending Australians a whole load of cash, and we’re using that cash to bid up the price of an unproductive asset (established housing).

The removal of housing prices from reality is almost total. Most investment advisers will tell you that the price of an asset is dependent on the income that asset generates. For example, the more a company earns (or more specifically, the more investors think that company will earn in the future), the higher its share price will rise. Given house and apartment prices are currently high (based on their terrible net rental yield) one would expect rents to be increasing significantly to justify their price.

However, the data tells a very different story.

CoreLogic found that Australian dwellings increased in price by 10 percent in the past year. In Sydney and Melbourne the price rises were even more significant, with Sydney increasing by 13% and Melbourne by 13.9%. If the market had any degree of rationality, given the market is already expensive, rentals would have needed to rise by around 20% during the year to justify those price increases. However, CoreLogic also  reported that Sydney rents were up a mere 0.4% and Melbourne up by 1.7% (both well below the inflation rate).

That means if the market was insane a year ago, it’s even worse now. Already overprice property is increasing, in Sydney’s case, 20 times as fast as underlying income.

The problem is no one seems to care what the banks do (least of all the government, even though taxpayers are on the hook if any of the big banks fall over, which if the history of banking is anything to go by is a virtual certainty at some point). Moreover, successive governments’ taxation policies (negative gearing, no capital gains tax, minimal land tax) serve to exacerbate the insanity.

How long will the boom last? Potentially some time. There are a lot of vested interests (banks, real estate industry, state governments, the media) who are utterly reliant on the bubble continuing. Sadly, a couple of generations of Australians will be all the poorer for it.
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Re: Insidious housing Ponzi has trapped government
Reply #8 - Mar 22nd, 2017 at 9:28am
 
Last Nail?
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Re: Insidious housing Ponzi has trapped government
Reply #9 - Mar 22nd, 2017 at 9:43am
 
Australia's banks are fingered as the feeders of unsustainable mortgage debt.

https://www.theguardian.com/commentisfree/2015/aug/20/banks-have-treated-our-hou...

[quote]Australia’s big four banks are among the largest and most profitable financial institutions in the world. Despite this, it is mathematically impossible that these banks, primarily focused on domestic retail operations, could be as big and profitable as they currently are without one of the following taking place:

either each of these banks, in their individual capacity, has solved (at the same time, in the same country, and as a first in the history of banking) the ultimate recipe for infinitely profiting from an exponentially-growing stock of private debt; or
they are all engaged in activity which is incredibly risky.
Looking at the balance sheets of these four banking leviathans they have clearly taken on abnormal sums of risk to invest in a single, all-in, one-way bet on the housing market.

As my colleague Philip Soos and I told the House of Representatives’ economics committee inquiry into home ownership last week, the evidence suggests that on the back of irrational exuberance, Australia is experiencing what can only be described as a classic debt-financed speculative housing bubble with every metric that evidenced the bubble in the US and Ireland present within our economic system today.

Between 2002 and 2015, the mortgage books of National Australia Bank, ANZ, Commonwealth Bank and Westpac grew by 388%, 435%, 475% and 554% respectively. Put another way, the big four’s mortgage books escalated from a combined $242bn to a whopping $1.13tn, surging at such a consistent rate it would make Bernie Madoff proud.


What the Australian banking system has developed is an uninterrupted growth model which shares a similar risk profile as a Ponzi or pyramid scheme by lending ever-larger sums of debt to homebuyers and property investors year after year. If this growth model is interrupted, however, and banks cannot expand their mortgage books further, housing price inflation halts and will then plunge.

Lending an exponentially increasing stock of credit to the public creates a distorted asset market by artificially driving up demand needlessly. In Australia’s case, the target for this debt splurge is the housing market, easily one of the most overvalued and unaffordable in the western world.

The next time you’re watching an auction in Sydney or Melbourne, wondering where all these buyers managed to muster up so much cash, chances are they have a domestic retail bank prepared to lend them a colossal sum of debt using new equity in their existing property portfolio as collateral that didn’t exist just 12 months ago.

Despite some notable exceptions, Australia’s mainstream economists and policymakers have either failed to identify, or have chosen to ignore the unmistakable link between the rapid rise in house prices and the eye-watering sum of mortgage debt Australian households have now accumulated.

On the rare occasion when one challenges the perceived fundamentals of the Australian housing and mortgage markets, the view is often brushed aside and considered a “lazy analysis” versus the mainstream view that high house prices in Australia are a rational outcome of efficient markets, superior risk management and falling nominal interest rates.

That’s precisely what the Americans, Irish and Spaniards were thinking before hell froze over their property markets and banking systems.

Government, Treasury, the central bank (RBA) and the prudential regulator (Apra) do not seem overly concerned about booming mortgage debt. By cutting the cash rate to the lowest point in a long time, the RBA has simply furthered the Ponzi scheme running rampant in Sydney and Melbourne, which dominates Australia’s housing market in terms of size and value.

Analysis People are buying Ferraris, Joe Hockey – that doesn't make them affordable

If either of these two major housing markets hits a brick wall, it will burst the national housing bubble. Policymakers and the public, unfortunately, will come to realise there never was a dwelling shortage – rather, a radical oversupply of mortgage debt being the real culprit for abnormally-high housing prices.

Australia’s economists have not learnt the lessons made obvious by the global housing bubble, especially in the US. While claiming dwelling shortages justified sky-high prices, none except a small number of American economists were competent enough to realise that more than enough dwellings were constructed to house the flow of new households formed over the course of the price boom, and any such shortage would’ve been evidenced by a strong surge in rents (steady yields).

At Apra, their recent and impotent response has been to implement weak macroprudential regulations. Formed in 1998, they have remained complacent, observing from the sidelines while Australia has built up a mountain of unconsolidated household debt, currently at 119.3% of GDP. And as of early 2015, ranking third place behind Switzerland and Denmark.

The housing market is sure to follow the path of the mining industry. Policymakers believed the mining boom would last for decades, boosting the economy. With the mining sector now collapsing, the public will inevitably realise rising housing prices cannot last forever. The imposition of grossly inefficient neol
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Re: Insidious housing Ponzi has trapped government
Reply #10 - Mar 22nd, 2017 at 11:07am
 
Lisa Jones wrote on Mar 22nd, 2017 at 9:28am:
Last Nail?


Lisa Jones sex-fantasizing about Ozpolitic denizen Last Nail as she climaxes?
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Re: Insidious housing Ponzi has trapped government
Reply #11 - Mar 22nd, 2017 at 11:21am
 
The banks will hit the wall first. When bank mortgage growth stops there will be an implosion:

Quote:
... What the Australian banking system has developed is an uninterrupted growth model which shares a similar risk profile as a Ponzi or pyramid scheme by lending ever-larger sums of debt to homebuyers and property investors year after year. If this growth model is interrupted, however, and banks cannot expand their mortgage books further, housing price inflation halts and will then plunge.

Lending an exponentially increasing stock of credit to the public creates a distorted asset market by artificially driving up demand needlessly. In Australia’s case, the target for this debt splurge is the housing market, easily one of the most overvalued and unaffordable in the western world.

...

On the rare occasion when one challenges the perceived fundamentals of the Australian housing and mortgage markets, the view is often brushed aside and considered a “lazy analysis” versus the mainstream view that high house prices in Australia are a rational outcome of efficient markets, superior risk management and falling nominal interest rates.

That’s precisely what the Americans, Irish and Spaniards were thinking before hell froze over their property markets and banking systems...
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Re: Insidious housing Ponzi has trapped government
Reply #12 - Mar 23rd, 2017 at 3:01am
 
Hello Friend.

They founds the solutions and such to this. Invite more fine folks like yerself from the Wilds of India and China-Land and such here to keep the motors running.

That's the only reason yer here friend.
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