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Bel
16-06-2006, 07:59 AM
We all know it's coming but the question is what are we going to do about?

A: Create a world wide movement that will overthrow the central banks and corrupt politicians of the world to bring sense to the madness of creating money out of thin air.
Or....
B: Start spending now and buy items that will hold there resale value once the coming years of turmoil has settled?
-Oil? (great fundamentals)
-Gold? (historic hedge, other than that...?)
-Silver?
-Land? (overpriced already, to purchase will likely require debt)

Forget the bird flu, inflation will be the pandemic that will sweep the old world away.

duncan macgregor
16-06-2006, 08:10 AM
Then on the other hand inflation is mans best friend. I know lots of people that got rich by understanding inflation in the property market.
macdunk

Bel
16-06-2006, 08:59 AM
Lets just say that your friends made a million dollars cash in the property market after selling everything off but in the year to come it costs a million dollars to buy a loaf of bread.

The year after that the new Government will exchange 1 old million dollars for a new $1 note.

How much money has your friends made now?

Bel
16-06-2006, 09:02 AM
What if the money we are using currently to purchase land, shares, commodities and doo dads is already worthless but we just don't know it yet?
Plausible?

If thats the case are we all not best to spend now and have zero cash?

Debate and information needed pleaseeeee

duncan macgregor
16-06-2006, 09:23 AM
quote:Originally posted by Bel

Lets just say that your friends made a million dollars cash in the property market after selling everything off but in the year to come it costs a million dollars to buy a loaf of bread.

The year after that the new Government will exchange 1 old million dollars for a new $1 note.

How much money has your friends made now?

Over the years one property buys another then another with inflation increasing the value of the property allowing them to refinance to have the next property self funding. Inflation is what makes it all work but then most people cant see that being rail track thinkers.
macdunk

Bel
16-06-2006, 12:04 PM
But my whole point was, what if the purchasing power of the dollar goes down greater than the value of the property having gone up by?

Halebop
16-06-2006, 12:20 PM
Duncan I think we all have our own private rail tracks. The town your track is going to is obviously sign posted "Property".

Bel I don't think the scenario of hyper inflation is a strong one. Inflation blowing out could happen. But most reserve bankers today grew up on an education of "crank up the rates until activity is killed". Even if inflation got away to double digits, we'd see 15% or 18% interest rates, a bad recession (including mortgagee sales for those leveraged property owners) and inflation killed. There aren't many bankers who'd be prepared to print money instead despite any political will to do so. If doing nothing else of use Mugabe is providing a salutory lesson on the "benefits" of that.

duncan macgregor
16-06-2006, 12:33 PM
quote:Originally posted by Bel

But my whole point was, what if the purchasing power of the dollar goes down greater than the value of the property having gone up by?
You miss the point, forget what the dollar is worth, it after all is only a promise to pay. Let me do a simple little example giving up all the benifits of doubt to your argument.
Let us presume that property has increased its value over the years by a paltry 8pc. My exp its 10pc on average.
Then let us presume the size of the deposit required to make that property self funding through rent is 20 pc. my exp its 10pc.
Then stop and think how long it will take for that first property to get refinanced at the new value, and withdraw your initial deposit.
You then have a self funded property and can buy the next one.
The only people that worry about inflation are the people that sit with their money in the bank, making property investors rich. What most people forget is property keeps pace with inflation the rent is a bonus. Wake up to yourself start useing the banks money.
macdunk

Bel
16-06-2006, 01:17 PM
"Wake up to yourself start useing the banks money."

You mean the paper and ink money generated from fractional reserve banking? Whats the tangible source and backing of that money again?

But lets say Hyper inflation is avoided by massive hikes in interest rates. Either the banks can pass it on to you or (fixed)they fold (unless propped up by Governments). How long can you afford to be earning 10% from rent on a property while paying 18% to the bank?

Theres no doubt that your scenario works perfectly... as long as the prices keep rising. What happens if the price stagnates or worse, drops?

Has my doom and gloom scenario ever happened before?

Bel
16-06-2006, 01:21 PM
Lets say you take $50K in capital gains from a property and use it to finance a second property.

What would the bank do or request from you if your original property loses that $50K in book value?

duncan macgregor
16-06-2006, 01:42 PM
We might also say what if an earthquake knocks the whole lot over.
I might stay in bed tomorrow to make sure i dont get run over by a bus. AH THE BEST LAID SCHEMES OF MICE AND MEN. The bloody bank might fall down. JEEZE i think i had better get out and buy a lotto ticket must have led a charmed life to make it this far. macdunk

Bel
16-06-2006, 02:50 PM
Fair enough :D

Still i cant help but get the vision that this current climate represents people gathering stranded fish at the beach as the tide pulls back beyond the horizon...

Halebop
16-06-2006, 03:06 PM
quote:Originally posted by duncan macgregor

We might also say what if an earthquake knocks the whole lot over.

A key difference is that we can lay the unknown future risk of an earthquake off onto someone else with minimal risk to ourselves. The same can't be said of financing risk unless we also lay off a portion of upside in the asset. Better yet in the commercial sector the tenant directly pays for our risk management choices. In comparison the financial risk of refinancing equity out of a low yielding and cyclical asset is difficult to mitigate. The times when we are most easily able to refinance (i.e. when equity peaks) also tend to be the times when it is least sensible to do so.

In any case a high interest rate environment is the friend of few. More tenants, domestic or commercial, fail or downsize. Growth slows or is even negative. Capitalization rates fall. Cash flows are squeezed. Banker tolerance for risk reduce. The real winner is someone who buys after the fall, not someone who holds through it with their pyramid of 12 refinanced properties.

Winston001
16-06-2006, 03:38 PM
quote:[i]

Has my doom and gloom scenario ever happened before?



Germany 1923. They had a think about it for a while.......................and then invaded Poland. :D

Halebop
16-06-2006, 03:53 PM
quote:Originally posted by Winston001

Germany 1923. They had a think about it for a while.......................and then invaded Poland. :D


Maybe we could invade Tasmania?

Winston001
16-06-2006, 03:54 PM
quote:Originally posted by Bel

Lets say you take $50K in capital gains from a property and use it to finance a second property.

What would the bank do or request from you if your original property loses that $50K in book value?


This isn't exactly the answer but a cataclysm has happened in our recent past. Specifically, 1985 - 1989 for farmers. The interest rates farmers paid went from around 9% to 15 - 18%. At the same time farms dropped in value leaving the owners with negative equity.

There were suicides, marriage breakups, mental health problems - just a tragic time but only glimpsed by the cities.

However the suprise was that the banks conducted very few mortgagee sales. Basically they were frightened about a financial rout so they suspended the loans and held their collective breaths.

The Lange/Douglas government eventually noticed and intervened by providing $10,000 exit packages for the worst cases. Others had part loans written off and low interest assistance.

This was a terrible time, yet the lenders did not act as we might have expected, and the government provided relief.

So the lesson is that if economic conditions get bad enough, we are all in the same (rather pleasant) boat. NZ would survive and worrying about money would be secondary to food, shelter, clothing etc.

After all, the Germans, Italians, Argentinians have all experienced hyperinflation and exist as robust nations today.

Bel
16-06-2006, 09:14 PM
"After all, the Germans, Italians, Argentinians have all experienced hyperinflation and exist as robust nations today"

I like this comment and it carries with it a lot of sense.

I guess that over the last 2 years since my marriage break up I've worked hard to pay off debt and save and would hate to lose it by any means that could be avoided with knowledge.

srotherh
17-06-2006, 10:13 AM
Bel
This is a good thread to hopefully make people think
I believe globally we are in for a dose of inflation that people do not expect.
Look ahead and invest wisely in the enviroment you see or believe to be coming.

Bel
18-06-2006, 04:13 PM
How on earth does increase in commodities cause inflation?

Lets say you have a total of $100 available in the worlds economy. Price of oil doubles from $1 to $2. All that happens is A: The demand is negatively effected and/or B: Less money is spent elsewhere in another part of the economy.

Inflation is caused by the Government printing more money, lets say $10 in a year which is of course %10 inflation (don't even mention the idea of CPI to measure inflation grrr) when A: The population hasn't grown or B: No new technology is invented to make the population more productive.

Halebop
18-06-2006, 04:46 PM
quote:Originally posted by Bel

How on earth does increase in commodities cause inflation?

Lets say you have a total of $100 available in the worlds economy. Price of oil doubles from $1 to $2. All that happens is A: The demand is negatively effected and/or B: Less money is spent elsewhere in another part of the economy.

I have $100 and the basket of 10 petroleum / iron / copper etc goods I buy each week at $10 each rise to $11 each because the raw price of inputs have risen drastically. I still have only $100 but prices have inflated. I now just buy 9 goods @ $11 or I borrow the additional $10 to make up the difference. Irrespective, prices have increased (inflated) by 10%. Although money supply has not increased this flows directly to CPI calculations. CPI calculations flow directly to union negotiators and investors alike.

...My next step is to demand a $10 pay rise to make up the difference which in turn maintains the same sort of pressures that caused the price rises in the 1st place...

The argument against this in a global economy is that merchants have improved scope to switch supplier to the lowest cost provider (there are some products where this is difficult or where conditions don't allow it, which is why we might pay much higher prices for Cement rather than easily switch to a different supplier for example). So instead of buying Steel widget from NZ Ltd for an inflated $11, we switch to Steel widgets from China Ltd, they pay the same raw costs but at a fraction of the labour cost sell it to us even after enourmous transport costs for $8 (and we wonder at the price of oil?). The trouble right now is that China has created its own bottlenecks. Cheap labour in the heavily industrialized regions has all but run out. They must pay more to maintain it or duplicate production in another less robust regions but in either exmaple increase their per unit overhead. This is inflationary and the world may struggle to avoid importing it.

USA wants China to revalue its currency. Although this might be warranted they should be careful of what they wish for...

Bel
20-06-2006, 11:44 AM
Ok so the goods have increased to $11 what happened to the demand? In your own comment demand dropped %10. What effect does the decrease in demand have on the suppliers in a free market economy?

You ask for an increase in pay to the tune of $10. Where is this money going to come from since productivity in your example has remained the same? i.e. there is no extra profit made by the suppliers to pass onto the worker/consumer?

Also how often does it occur that all goods increase in price due to the raw price of inputs?
You may see the cost of oil go up, the demand for it go down while seeing the price of DVD recorders come down and the demand go up. More money spent on oil means less money spent on DVD's, there is no inflation found there.

Heres the key for you to understand.

"borrow the additional $10 to make up the difference"

Where does this money come from in an economy that only has $100? Why the central banks/governments print it out of thin air of course. Which while it allows you to buy 10 goods instead of 9 for that round of trading you will note that your remaining $100 has been diluted by %10. And believe me suppliers will pickup on this and increase the price of there goods sold to compensate. i.e. Inflation.

CPU us no accurate measure of inflation, its purely a best guess scenario thats fudged to get the estimated result IMHO.

Halebop
20-06-2006, 01:08 PM
In the face of inflation orthodox Reserve Bankers that want a long term positive outcome will make money more expensive, not cheaper, more scarce, not plentiful. Typically they will just raise benchmark interest rates. This will make borrowing for everyone's respective "10th good" less attractive / too expensive. It will send a message to the market to only invest where it is most profitable (because financing will kill the economics). Demand reduces because there is no such thing as "out of thin air" money for consumers and businesses. It has to come from somewhere and it has to cost something.

Your argument seems to be that in the face of inflation bankers will move to increase money supply and/or make it cheaper? Perhaps some will for political reasons or because they misjudge the market but eventually the market will price it accurately no matter how long the hapless banker tries to avoid physics. The orthodox and correct response it to do the opposite.

Cooper
20-06-2006, 02:10 PM
I agree. Looser monetary policy is useful only for staving off deflation, once deflation is no longer a threat bankers will err on the side of too tight in terms of monetary policy as inflation becomes the new evil. If monetary policy was too loose previously then this only means that the likelihood is monetary policy will become too tight as a reaction.

Incidentally, if you say the following with the intonation of a preacher, and with a slight lisp, it really "works";



quote:Originally posted by Halebop

In the face of inflation orthodox Reserve Bankers that want a long term positive outcome will make money more expensive, not cheaper, more scarce, not plentiful.

Halebop
20-06-2006, 02:38 PM
quote:Originally posted by Cooper

Incidentally, if you say the following with the intonation of a preacher, and with a slight lisp, it really "works";

:D

...In my mind I was saying it in my best Elmer Fudd voice. This also works.

Cooper
20-06-2006, 03:57 PM
quote:Originally posted by Halebop


quote:Originally posted by Cooper

Incidentally, if you say the following with the intonation of a preacher, and with a slight lisp, it really "works";

:D

...In my mind I was saying it in my best Elmer Fudd voice. This also works.


I'm trying for Elmer but all I'm getting is Tweety bird... that works as well though... let's face it, you've delivered a fantastic piece of prose, it doesn't matter what voice you use.

Incidentally, Skinny posted in reply to me a year or so ago that he thought the US RB mechanisms were such that stagflation was not a concern... stuck in my mind for this long, and I've only just worked out in the past couple of months exactly what these mechanisms are and how they'd work properly. Thanks Skinny... I think you're right*.

* No I'm not telling. Work it out for yourselves.

Halebop
20-06-2006, 04:00 PM
quote:Originally posted by Cooper

* No I'm not telling. Work it out for yourselves.

Give me a clue at least! Is it anything to do with Elmer or Tweety?

Halebop
20-06-2006, 04:01 PM
quote:Originally posted by hiawatha

All of which is likely to lead to unemployment and recession.

Do I detect a hint of disapproval?

Cooper
20-06-2006, 04:04 PM
quote:Originally posted by Halebop


quote:Originally posted by Cooper

* No I'm not telling. Work it out for yourselves.

Give me a clue at least! Is it anything to do with Elmer or Tweety?


You probably already know... I was just painfully slow because I was thinking about it from another angle. Now I've seen the light... yellowish and skinny of beam, picks up a bit of the dust in the air... but I'm going to treasure it like I did my transformer watch in the early eighties.

Cooper
20-06-2006, 04:08 PM
quote:Originally posted by Halebop


quote:Originally posted by hiawatha

All of which is likely to lead to unemployment and recession.

Do I detect a hint of disapproval?


No, Hiawatha realises that increased unemployment in the short term is better than uncontrolled inflation in the long term, and that recessions are less volatile as a result of a focus on controlling inflation. Native Americans are good like that.

Edit: No such word as "focu" in the English language. Could be in a native american tongue, who knows. Hiawatha might.

Halebop
20-06-2006, 04:17 PM
quote:Originally posted by Cooper

No, Hiawatha realises that increased unemployment in the short term is better than uncontrolled inflation in the long term, and that recessions are less volatile as a result of a focus on controlling inflation. Native Americans are good like that.

Surely he'd want as much money flowing around as possible since most of it will end up in his reservation casino?


quote:Originally posted by Cooper

Edit: No such word as "focu" in the English language. Could be in a native american tongue, who knows. Hiawatha might.


Phew. I thought it was a typo but was betting on FucU.

Cooper
20-06-2006, 04:29 PM
quote:Originally posted by Halebop


quote:Originally posted by Cooper

No, Hiawatha realises that increased unemployment in the short term is better than uncontrolled inflation in the long term, and that recessions are less volatile as a result of a focus on controlling inflation. Native Americans are good like that.

Surely he'd want as much money flowing around as possible since most of it will end up in his reservation casino?




No, he has reservations about the morality of that. He thinks its simply an example of scalping those who don't deserve it. Sure, some people claim that gamblers know the squaw and decide to lose their money anyway, but Hiawatha is made of stronger moral fabric than that. Strong like buffalo skin.

Halebop
20-06-2006, 09:37 PM
quote:Originally posted by hiawatha

Hiawatha say too much plenty wampum bad - unless in hiawatha's wampum belt.


See Cooper! See!

Cooper
21-06-2006, 09:12 AM
quote:Originally posted by Halebop


quote:Originally posted by hiawatha

Hiawatha say too much plenty wampum bad - unless in hiawatha's wampum belt.


See Cooper! See!


Hiawatha is simply discussing the fact that we have a tendency to assess our wealth in terms relative to the wealth of others, not in absolute terms. Hiawatha's subsequent assertion will be that widening wealth discrepancies in a developed economy as a result of the adoption of right wing policy will result in a negative outcome despite better aggregate growth.

Hiawatha recognises that growth should be pursued, but Hiawatha believes this pursuit of growth should be constrained by a focus on wider measurements of wealth, such as social capital. Hiawatha's wider evaluation of what constitutes wealth is finding favour in institutional thinking, and Hiawatha believes this wider measurement of growth will soon become the dominant paradigm.

Halebop
21-06-2006, 09:29 AM
Bah. Yer nothin' but a ingin lover!

Cooper
21-06-2006, 02:21 PM
quote:Originally posted by Halebop

Bah. Yer nothin' but a ingin lover!


You haven't seen Pocahontas?

Met her in a bar one night... defending the poor woman from such comments as "I'd like to poke her hontas alright!". I asked if she'd like to see little big horn and she replied that she was waiting for some clown called "John Smith"... I told her the guy had obviously given her a false name and that he didn't treat her right. She demurred and insisted he would show, and being the gentleman I am I left her to it.

I often wonder if I shouldn't have pressed my suit a little more... showed some more Cooper magic... but hey, it just wasn't to be.

Halebop
21-06-2006, 04:04 PM
quote:Originally posted by Cooper

...but hey, it just wasn't to be.

Was that a long winded way of saying you preferred her brother? [?]

Cooper
21-06-2006, 04:06 PM
quote:Originally posted by Halebop


quote:Originally posted by Cooper

...but hey, it just wasn't to be.

Was that a long winded way of saying you preferred her brother? [?]


No... I just gave her my heart for that brief period of time, and then took it back... like... like an indian giver.