House prices

Blowin's picture
Blowin started the topic in Friday, 9 Dec 2016 at 10:27am

House prices - going to go up , down or sideways ?

Opinions and anecdotal stories if you could.

Cheers

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GuySmiley Thursday, 5 May 2022 at 9:24am

Remember the recommendation ( and implementation ) to tighten lending standards from the Banking Royal Commission (the one Morrison voted against establishing 26 times) and how the federal government gave the green light for those same lending standards to be once again relaxed when’s house prices dipped? How’s that flip flopping by the federal govt, RBA and the banks working for them now? Wow, blame the over ambitious borrower during an election, never!!

monkeyboy's picture
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monkeyboy Thursday, 5 May 2022 at 1:27pm

CPI: 5%
Home Loan: 3%

FREE MONEY !

flollo's picture
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flollo Thursday, 5 May 2022 at 5:37pm

Shit, FED has gone up 0.5%. USD on fire

velocityjohnno's picture
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velocityjohnno Thursday, 5 May 2022 at 5:57pm

He did suggest no 0.75% future rises, and a massive ripping of faces off shorts ensued.
US inflation 8.6%
Fed funds target rate raised to 0.75% to 1%
They've got a little way to go to catch the inflation boogey man

flollo's picture
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flollo Thursday, 5 May 2022 at 6:03pm

Here's a bit of data:

- Reo up 43%
- Steel beams up 41%
- Structural timber up 39%
- Plywood up 29%
- Electrical cable up 27%
- Copper pipes up 25%
- Terracotta tiles up 21%
- Metal roofing up 20%
- Insulation up 14%

Overall building materials inflation (March yoy) - 15.4%

Fixed price contract with a 10% margin signed a year ago (there's way less BTW)? Will we see a wave of unfinished projects and defaults?

flollo's picture
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flollo Thursday, 5 May 2022 at 6:11pm
velocityjohnno wrote:

He did suggest no 0.75% future rises, and a massive ripping of faces off shorts ensued.
US inflation 8.6%
Fed funds target rate raised to 0.75% to 1%
They've got a little way to go to catch the inflation boogey man

Recession before they catch up? Or no recession?

monkeyboy's picture
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monkeyboy Thursday, 5 May 2022 at 7:16pm

3 items "caused" inflation in AU:

Building costs, fuel and education.

I am not sure raising interest rates will deal with any of those as 1 and 2 are mostly supply side (I s'pose 1 will be dampened if demand is dropped but prices are set globally not locally). Number 3 was a raise in the tier levels - whatever that means, so thats a once off and effects "only" students.

So, maybe baby there is a transitory element if the supply side can be addressed (but that aint gonna happen quickly).

The US was just a bunch of short covering, and long selling (in the USD). Bull trap.

Distracted's picture
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Distracted Thursday, 5 May 2022 at 7:39pm
flollo wrote:

Here's a bit of data:

- Reo up 43%
- Steel beams up 41%
- Structural timber up 39%
- Plywood up 29%
- Electrical cable up 27%
- Copper pipes up 25%
- Terracotta tiles up 21%
- Metal roofing up 20%
- Insulation up 14%

Overall building materials inflation (March yoy) - 15.4%

Fixed price contract with a 10% margin signed a year ago (there's way less BTW)? Will we see a wave of unfinished projects and defaults?

That’s crazy. Wonder if the billions in government funded infrastructure works will stick to the contracts or be renegotiated to prevent collapses. Subbies will have to be careful.

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tubeshooter Thursday, 5 May 2022 at 7:49pm

Don't know what happened but the plumbers and concreters walked off a big job next door to me a few days ago and haven't been back. There was some sort of meeting , I overheard a few expletives. Looks like the Mc Mansion is on hold.

oxrox's picture
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oxrox Thursday, 5 May 2022 at 8:05pm

Any house that was fixed priced a year or two ago is going to create massive problems. If the client holds the builder to those prices which is their right, something will need to give ie builders going into liquidation.

donweather's picture
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donweather Thursday, 5 May 2022 at 8:34pm
oxrox wrote:

Any house that was fixed priced a year or two ago is going to create massive problems. If the client holds the builder to those prices which is their right, something will need to give ie builders going into liquidation.

More likely builders cutting corners in the build....client ending up with a shit product.

oxrox's picture
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oxrox Thursday, 5 May 2022 at 8:37pm

Would think there is a lot of that going on right now don. Especially with the cheaper builders.

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soggydog Thursday, 5 May 2022 at 8:38pm
donweather wrote:
oxrox wrote:

Any house that was fixed priced a year or two ago is going to create massive problems. If the client holds the builder to those prices which is their right, something will need to give ie builders going into liquidation.

More likely builders cutting corners in the build....client ending up with a shit product.

More like sub contractors will get shafted as most tradies won’t do shit work because call backs suck.

donweather's picture
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donweather Thursday, 5 May 2022 at 8:39pm
monkeyboy wrote:

3 items "caused" inflation in AU:

Building costs, fuel and education.

I am not sure raising interest rates will deal with any of those as 1 and 2 are mostly supply side (I s'pose 1 will be dampened if demand is dropped but prices are set globally not locally). Number 3 was a raise in the tier levels - whatever that means, so thats a once off and effects "only" students.

So, maybe baby there is a transitory element if the supply side can be addressed (but that aint gonna happen quickly).

The US was just a bunch of short covering, and long selling (in the USD). Bull trap.

Raising interest rates will deal with #1. Dont forget people with equity in their home/s also undertake large and costly reno's which drive up demand for materials and tradies. interest rates will dampen people's appetite for full blown reno's as well as new builds, so I think it will help.....but RBA has to lift to somewhere around the 2-2.5% cash rate to make any dent IMO.

flollo's picture
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flollo Friday, 6 May 2022 at 12:39am

Trades go to the builder to ask for more money > builder goes to the investor to ask for more money > investor goes to the bank to ask for more money (if keen) > bank books the valuation on the property > if ok, money approved. If not, no money

Investor can bypass the valuation/bank process if they’ve got cash and are willing to spend that cash.

But in a vast majority of cases, the valuator is the king. And if the valuation numbers stagnate or drop we might be in a shaky situation.

freeride76's picture
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freeride76 Friday, 6 May 2022 at 6:07am

Good point Flollo.

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donweather Friday, 6 May 2022 at 6:49am
flollo wrote:

Trades go to the builder to ask for more money > builder goes to the investor to ask for more money > investor goes to the bank to ask for more money (if keen) > bank books the valuation on the property > if ok, money approved. If not, no money

Investor can bypass the valuation/bank process if they’ve got cash and are willing to spend that cash.

But in a vast majority of cases, the valuator is the king. And if the valuation numbers stagnate or drop we might be in a shaky situation.

And we all know what will happen to Aus if the housing market gets into a shaky situation!!

simba's picture
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simba Friday, 6 May 2022 at 7:10am

honestly i dont know how sticking interest rates up helps the economy, just applies more pressure to the cost of everything which drives up inflation.....

DudeSweetDudeSweet's picture
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DudeSweetDudeSweet Friday, 6 May 2022 at 7:31am

Driving up interest rates reduces demand for things which reduces price of things. In theory.

Keep your eyes on Realestate.com to watch this theorem play out in real time.

simba's picture
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simba Friday, 6 May 2022 at 7:42am

yes i know house prices will stabilise or fall but the pressure on the building industry which is the driver of the aust economy these days will hurt a lot of people coupled with everything else going north and i can see a recession looming...so whats the point of putting interest rates up....

freeride76's picture
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freeride76 Friday, 6 May 2022 at 7:47am

I agree Simba, and a lot of others do too.

Raising interest rates when the cost of housing is already such a large component of cost of living is likely to be inflationary.

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monkeyboy Friday, 6 May 2022 at 7:53am
simba wrote:

yes i know house prices will stabilise or fall but the pressure on the building industry which is the driver of the aust economy these days will hurt a lot of people coupled with everything else going north and i can see a recession looming...so whats the point of putting interest rates up....

It's a really good question, one I've never got my head around fully. The best, most simple explanation I have is: if we dont raise interest rates and our major trading partners do then the AUD goes down and everything becomes super expensive domestically because we import everything and even our local energy is priced on the global markets (unfortunately).

Australia was once described as a "mine with a farm attached". I think we can add "...and a finacial sector dependant upon home loans and credit" although the banks will be just fine I'm sure.

DudeSweetDudeSweet's picture
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DudeSweetDudeSweet Friday, 6 May 2022 at 8:14am
simba wrote:

yes i know house prices will stabilise or fall but the pressure on the building industry which is the driver of the aust economy these days will hurt a lot of people coupled with everything else going north and i can see a recession looming...so whats the point of putting interest rates up....

It had to happen sooner or later and the later we leave it the worst the worse the outcome. The Housing Ponzi should’ve been popped years ago. We are obviously facing a more tumultuous conclusion by prolonging it to this stage but it’d be much more destructive again if the Ponzi cancer was allowed to metastasise any further throughout our economy.

At the moment the Australian economy is the financial equivalent of a career drunk with liver necrosis who chooses to drink faster to avoid the hangover.

donweather's picture
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donweather Friday, 6 May 2022 at 9:04am
simba wrote:

honestly i dont know how sticking interest rates up helps the economy, just applies more pressure to the cost of everything which drives up inflation.....

It reduces spending which reduces demand which reduces inflation.

donweather's picture
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donweather Friday, 6 May 2022 at 9:06am
simba wrote:

yes i know house prices will stabilise or fall but the pressure on the building industry which is the driver of the aust economy these days will hurt a lot of people coupled with everything else going north and i can see a recession looming...so whats the point of putting interest rates up....

To slow inflation so we don’t end up with hyperinflation like places likeTurkey El Salvador etc which plummets the AUD.

donweather's picture
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donweather Friday, 6 May 2022 at 9:08am
DudeSweetDudeSweet wrote:

At the moment the Australian economy is the financial equivalent of a career drunk with liver necrosis who chooses to drink faster to avoid the hangover.

Gold!!! And yet so true.

Constance B Gibson's picture
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Constance B Gibson Friday, 6 May 2022 at 9:17am

And so personal. Commenting from lived experience, no doubt.

(References to economics not applicable)

AndyM's picture
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AndyM Friday, 6 May 2022 at 9:20am

Yep, I like that one too.

It's criminal how this has been playing out for over twenty years and
a) no fucker has done anything about it, and
b) the electorate has been too greedy and short sighted (prompted by the media) to deal with it (see 2019 election).

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adam12 Friday, 6 May 2022 at 9:23am

I dropped Economics in second year Uni back in 1980 so anything I learned is well and truly lost in the fog, but can an economist here tell me, I vaguely remember that to control inflation you have to set interest rates above the inflation rate. Is that correct?

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AndyM Friday, 6 May 2022 at 9:27am

That'd make life interesting.

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flollo Friday, 6 May 2022 at 9:43am
freeride76's picture
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freeride76 Friday, 6 May 2022 at 9:46am

Zero chance Australia could ever see hyper-inflation.

That would take deliberate Govt policy of wage indexing to price growth, and regularly, to ever get into the tight wage/price upward spiral which is a hallmark of hyper-inflation.

We had sustained high inflation through 70's/80's for eg, with no hyper-inflation.

Interest rate rises can't suppress demand for non-discretionary items - and if that is where most of the price growth is (which it is) then interest rate rises will be useless.

It will take supply side bottlenecks to be fixed, which has nothing to do with RBA monetary policy.

Building materials pricing will not be reduced by interest rate rises for eg.

flollo's picture
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flollo Friday, 6 May 2022 at 10:01am

Nice one @freeride76, I share the same sentiment. I will also add that we need to be careful of lunatic politicians promising to lock rates at a max of 3%. That move could literally destroy the AUD and our standard of living. Not to mention it would bankrupt the state in bad scenarios.

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thermalben Friday, 6 May 2022 at 10:08am
flollo wrote:

I will also add that we need to be careful of lunatic politicians promising to lock rates at a max of 3%. That move could literally destroy the AUD and our standard of living. Not to mention it would bankrupt the state in bad scenarios.

How would that be possible anyway? Doesn't the RBA set the rates, not the government?

bonza's picture
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bonza Friday, 6 May 2022 at 10:09am

Its an interesting change of policy tactic from freedom to 3% capped home loan from UAP isnt it. Different audiences in my opinion. Don't reckon the UAP will get any traction from it.

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freeride76 Friday, 6 May 2022 at 10:11am

I assumed it was just Clive Palmer blatantly BS'ing to try and win a Senate Seat?

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thermalben Friday, 6 May 2022 at 10:20am
freeride76 wrote:

I assumed it was just Clive Palmer blatantly BS'ing to try and win a Senate Seat?

Surely not? Would be totally out of character.

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bonza Friday, 6 May 2022 at 10:31am

yep but he needs people to vote for him to do that, now that the moderate anti vax crowd have their freedom back and are less inclined to vote for UAP. I don't see those most worried about interest rates (FHB's with new mortgages) who clive is targeting being dumb enough to think he can cap 3% mortgage rates. different audience in my opinion and probably not fans of clive. don't think he will do well out of it.

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freeride76 Friday, 6 May 2022 at 10:37am

no me neither.

It's just a hail Mary IMO, to try and win back some of the anti-vax vote that he would have lost.

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Pops Friday, 6 May 2022 at 10:38am
freeride76 wrote:

Interest rate rises can't suppress demand for non-discretionary items - and if that is where most of the price growth is (which it is) then interest rate rises will be useless.

Read the other day that inflation of non-discretionary items was a touch over 5% but inflation of discretionary items was 2.1%.

freeride76's picture
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freeride76 Friday, 6 May 2022 at 10:52am

That seems to be a feature of globalised/neoliberal economies.

All the trinkets and bells and whistles get cheaper and cheaper but the stuff you actually can't live without gets more and more expensive.

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DudeSweetDudeSweet Friday, 6 May 2022 at 10:59am
Constance B Gibson wrote:

And so personal. Commenting from lived experience, no doubt.

(References to economics not applicable)

How’d that big move to Streaky go champ?

DudeSweetDudeSweet's picture
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DudeSweetDudeSweet Friday, 6 May 2022 at 11:12am
freeride76 wrote:

Zero chance Australia could ever see hyper-inflation.

That would take deliberate Govt policy of wage indexing to price growth, and regularly, to ever get into the tight wage/price upward spiral which is a hallmark of hyper-inflation.

We had sustained high inflation through 70's/80's for eg, with no hyper-inflation.

Interest rate rises can't suppress demand for non-discretionary items - and if that is where most of the price growth is (which it is) then interest rate rises will be useless.

It will take supply side bottlenecks to be fixed, which has nothing to do with RBA monetary policy.

Building materials pricing will not be reduced by interest rate rises for eg.

You sure mate?

Houses around here jumped 100% percent in a matter of months. As they have in lot any places . And they weren’t $2 houses to start with.

You don’t think the single largest consumer item in the country increasing in price by about the factor of an average lifetime’s net savings in less than a year is hyperinflation? The inflation may not be evenly spread throughout the economy but it’s certainly already present in places.

Here’s the thing - If you’ve got a house worth $600K then increases in worth to $2M in the span of 12 months , as I’ve seen numerous times , it’s not the value of the house which has increased but the value of the dollar decreasing immensely. Otherwise known as hyperinflation.

DudeSweetDudeSweet's picture
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DudeSweetDudeSweet Friday, 6 May 2022 at 11:07am
freeride76 wrote:

I assumed it was just Clive Palmer blatantly BS'ing to try and win a Senate Seat?

Yep. No lie too big etc

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flollo Friday, 6 May 2022 at 11:08am

We need to call things for what they are and capping rates at 3% is borderline treasonous as it might destroy the country as we know it. I'll explain why below.

Reserve Bank as we know it was established by Reserve Bank Act 1959 which officially split RBA from CBA. It is an independent body as we know it now. But to cap rates you are effectively saying that you have a difference of an opinion to the RBA. The below 3 paragraphs describe the relationships between the treasurer (government) and the RBA when there is a difference of an opinion

'Section 11 of the Reserve Bank Act 1959 requires the Reserve Bank Board to inform the Australian Government from time to time of the Reserve Bank's monetary and banking policy. This occurs largely through frequent formal and informal contacts between the Governor and the Treasurer.

The Act lays down procedures which are to be followed if there is a difference of opinion between the Australian Government and the Reserve Bank Board as to whether the monetary and banking policy of the Bank is ‘directed to the greatest advantage of the people of Australia’. First, the Treasurer and the Board are to endeavour to reach agreement. If they are unable to do so, the Board is required to provide the Treasurer with a statement on the matter. The Treasurer may then submit a recommendation to the Governor-General who, with the advice of the Federal Executive Council, may determine the policy to be adopted by the Bank. The Treasurer would then inform the Reserve Bank Board of the policy so determined and the Board would be obliged to implement it. The Board would also be informed that the Government accepted responsibility for the adoption by the Bank of that policy. The Treasurer would lay before each House of Parliament a copy of the order determining the policy which was to be implemented by the Bank, together with the statement provided to the Treasurer by the Reserve Bank Board and a statement by the Government on the matter on which opinions had differed. To date this procedure has not been used.

Section 13 of Reserve Bank Act 1959 also directs that ‘the Governor and the Secretary to the Department of the Treasury shall establish a close liaison with each other and shall keep each other fully informed on all matters which jointly concern the Bank and the Department of the Treasury’.'

So, Clive can go ahead and try to cap the rates with 3 basic scenarios (could be more):

1) Claim difference of an opinion with RBA and influence the Governor-General - This would trigger a constitutional crisis and if Governor-General was to adopt their suggestions it could lead to serious civil disobedience (I would be there in the first line)

2) Amend the relationship above so the treasurer is the one calling the shots. He can do it in 2 different ways (again, could be more):

A) Amend the Reserve Bank Act nicely through the parliament and everyone accepts it - Highly
unlikely it can happen OR
B) Take weapons and do it by force (not to be excluded). Civil disobedience again and yes, I would
be there

3) Subsidise the delta between the nominal rate and 3% directly to retail banks. If there is nowhere to get money (globally) to make profits at retail 3% then banks simply won't do it. Don't forget that retail 3% is not far off from where we are now. If banks raise finance in the US for example at 5% and have to sell it for 3% here it would mean that the taxpayer will pay a 2% difference. Higher rates = higher subsidy. This is where 'bankrupt the state' comes in, it's a real risk in this scenario as everyone globally started lifting rates. You could argue that subsidies should go to the mortgage holders but will banks keep issuing new loans? Who knows. But overall, this is like negative gearing x 100 in volume.

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DudeSweetDudeSweet Friday, 6 May 2022 at 11:11am

Clive spurts out dung like the back end of an overfed elephant. He’s the legit Barnum and Bailey candidate. It’s heavy to believe that he’d garner a single vote. What can you do - democracy.

flollo's picture
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flollo Friday, 6 May 2022 at 11:11am
DudeSweetDudeSweet wrote:
freeride76 wrote:

Zero chance Australia could ever see hyper-inflation.

That would take deliberate Govt policy of wage indexing to price growth, and regularly, to ever get into the tight wage/price upward spiral which is a hallmark of hyper-inflation.

We had sustained high inflation through 70's/80's for eg, with no hyper-inflation.

Interest rate rises can't suppress demand for non-discretionary items - and if that is where most of the price growth is (which it is) then interest rate rises will be useless.

It will take supply side bottlenecks to be fixed, which has nothing to do with RBA monetary policy.

Building materials pricing will not be reduced by interest rate rises for eg.

You sure mate?

Houses around here jumped 100% percent in a matter of months. As they have in lot any places . And they weren’t $2 houses to start with.

You don’t think the single largest consumer item in the country increasing in price by about the factor of an average lifetime’s net savings in less than a year is hyperinflation? The inflation may not be evenly spread throughout the economy but it’s certainly already present in places.

Here’s the thing - If you’ve got a house worth $600K then increases in worth to $2M in the span of 12 months , it’s not the value of the house which has increased but the value of the dollar decreasing immensely. Otherwise known as hyperinflation.

True, but existing homes are excluded from the official inflation numbers. Only newly developed + rent are included, bundled together with other things into the housing component. Below from ABS:

'It includes new dwellings purchased by owner occupiers (houses, townhouses and apartments), rents and major renovations. Including new dwelling prices captures the cost of adding to the housing stock.'

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AndyM Friday, 6 May 2022 at 11:59am
freeride76 wrote:

That seems to be a feature of globalised/neoliberal economies.

All the trinkets and bells and whistles get cheaper and cheaper but the stuff you actually can't live without gets more and more expensive.

In a nutshell.
Helps with the misapprehension that we've never had it so good.

velocityjohnno's picture
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velocityjohnno Friday, 6 May 2022 at 12:36pm

"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved."

Ludwig von Mises, in "Human Action".

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velocityjohnno Friday, 6 May 2022 at 12:36pm

I say sooner, will be nicer outcome.