Quantitative Easing, what's your view?

Discussion in 'Property Market Economics' started by spludgey, 9th Dec, 2018.

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  1. Waterboy

    Waterboy Well-Known Member

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    Here you go. Just today: https://www.rba.gov.au/media-releases/2020/mr-20-07.html

    Welcome to QE1, Australia! :D:eek::cool:
     
  2. Omnidragon

    Omnidragon Well-Known Member

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    Itll help stave off a third degree crisis with the financial institutions. But issue is not there at the moment. Nice preemptive move though.
     
  3. Trailblazer

    Trailblazer Well-Known Member

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    What are the issues?
     
  4. John_BridgeToBricks

    John_BridgeToBricks Buyer's Agent Business Member

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    Didn't monetary intervention lead to the bubble that caused the crisis? I think if we are looking at the virus as the problem, we are looking in the wrong direction. You don't blame the pin, you blame the bubble. If it wasn't corona, it would have been something else.
     
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  5. Omnidragon

    Omnidragon Well-Known Member

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    The idea is to get rid of the pin and make a bigger bubble.
     
  6. np999

    np999 Well-Known Member

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    as aud/usd approaches 0.6, it appears rba is already losing its credibility with the talk of qe.

    Lowe laments lack of inflation, but the inconvenient truth is that prices are rising fast for many essentials (insurance premiums, school fees, council rates, strata levies, and now even toilet rolls and rice).

    the cons who compile cpi will have a hard time hiding the truth, I bet they will start messing with the calculation to produce a number that can justify zirp and qe.
     
  7. John_BridgeToBricks

    John_BridgeToBricks Buyer's Agent Business Member

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    Yes, the CPI (or CP-lie) is a terrible measure of inflation. In more developed economies, when a central bank causes inflation by printing money (creating credit), it doen't go into food and other basic essentials - the inflation in advanced economies goes into asset prices.

    It is absurd when people say "there is no inflation" while house prices are going up 15% per year. There is loads of inflation - it is just going into asset prices.

    I would also add that inflation is the process of expanding the money supply. Price increases are the result of inflation.

    We actually have unprecedented inflation at the moment - the question is actually - where is the inflation going, and central banks can't control that.
     
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  8. Omnidragon

    Omnidragon Well-Known Member

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    Targeting inflation is a historical myth to begin with. It’s good that prices deflate in some goods, such as cars or bananas. Who wants to buy $500 bananas?
     
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  9. John_BridgeToBricks

    John_BridgeToBricks Buyer's Agent Business Member

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    Bringing it all back to real estate as we ought to do on this forum: if the central banks are inflation machines, and if the statistics mis report inflation, it means that real estate is a fantastic place to park your money.

    While they are targeting consumer prices and ignoring asset price inflation, it suggests real estate will always have the tail wind of monetary policy.

    I read once, perhaps on this forum, that "monetary policy is socialism for the rich", which I always thought was a pithy way to put it.
     
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  10. Beano

    Beano Well-Known Member

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  11. Waterboy

    Waterboy Well-Known Member

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    So are you willing to lower house prices and rents to control inflation?

    Housing is probably the biggest cost of living in this country.
     
  12. croseks

    croseks Well-Known Member

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    Dollar goes bananas on rising inflation


    Banana Prices.JPG :oops:
     
  13. Omnidragon

    Omnidragon Well-Known Member

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  14. Omnidragon

    Omnidragon Well-Known Member

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    That's kind of true - unless people are genuinely unemployed, like in US/PIGS during 2009. Which is why I like employment as a measure.
     
  15. kitdoctor

    kitdoctor Well-Known Member

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    Finally someone that understands the meaning of deflation and inflation.

    Whether we "...actually have unprecedented inflation [increases]..." of asset prices though may not be true. When a politician says we've experienced a 75% increase in house prices over the last five years this is a reference to the nominal price gain. As you would know many property owners didn't achieve anything like that. A nominal price increase in an asset needs to be converted to a real price increase.

    As a simple example, say you bought an IP in 2007 for $500000 (nominal terms). Ignoring purchase costs, taxation benefits etc. just to break even that IP has to be worth $670000 (nominal terms) in 2020. In other words, at a value of $670000 the investor has not made anything.

    I think I understand the concepts here but do correct me if I'm wrong or you can add further. I just don't think most people get this stuff and erroneously think that all residential property investors have made an absolute fortune.
     
    Last edited: 2nd Apr, 2020
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  16. John_BridgeToBricks

    John_BridgeToBricks Buyer's Agent Business Member

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    I price everything in gold to get the real price movements. Nothing just goes up and up. That's just inflation. I price Sydney real estate in ounces of gold to understand true price movements, and as at the end of February 2020, Sydney house prices are at their 2008 levels.

    This is in a sense why I am not too concerned about Sydney property prices - they were not in a bubble when we went into the crisis. Australian real estate took its medicine in 2017-2019.

    Compare to actual bubbles in the bond market or the US stock markets.

    For those interested, Google: Gold Dow ratio, and click on the Macrotrends link. 100 year trends. Great website.

    For those interested in the gold to real estate ratios per Australian city, DM me directly.
     
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  17. TheSackedWiggle

    TheSackedWiggle Well-Known Member

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    If you are measuring house price in gold, shouldn't wages be also measured in gold?
    as in real life wages fund house purchases.

    avg weekly household weekly income
    in 2008 was 2414$ ( aka 2.68oz in gold then at 900/oz)
    in 2020 was 2620$ ( aka 1oz in gold now at 2620/oz)


    aka Real wages in 2020 have fallen by more than 60% when priced in gold when compared to wages in 2008.
     
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  18. John_BridgeToBricks

    John_BridgeToBricks Buyer's Agent Business Member

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    As JP Morgan himself said, "Gold is money, everything else is credit".

    So yes, it works for wages, the Dow, oil, everything. Gold is a useful clarifier in my opinion.
     
  19. kitdoctor

    kitdoctor Well-Known Member

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    Music to my ears! Pricing values of financial instruments, assets etc. in gold is one way to go. Financial commentators, investors etc. would see some interesting charts e.g. stock market indices priced this way. It would put an end to the adage "The stock market always goes up" (meaning over the long term).

    @John_BridgeToBricks you said "...DM me". Do you mean direct email you? I'm interested.