It would seem that the measures taken in oversight and reporting, albeit a massive improvement on previous regulatory mishaps, are again proving porous. The rampant politicisation of interest rate policy and monetary tools are again creating new asset bubbles, most notably in the property and equity markets, which may in the end pose even greater risk than the financial dislocations of 2008.Today’s AM fix was USD 1,295.00, EUR 942.09 and GBP 779.14 per ounce.
Yesterday’s AM fix was USD 1,314.50, EUR 952.74 and GBP 794.98 per ounce. Gold fell $10.80 or 0.82% yesterday to $1,301.00/oz. Silver slipped $0.25 or 1.25% at $19.75/oz.
Gold bullion dropped to its lowest level in six weeks in London as better than expected durable goods hinted to a recovery in the U.S. and increased the case for the U.S. Fed to keep reducing stimulus and start to raise interest rates. Fed Chair Yellen commented after this month’s policy meeting that the bond buying program may end this fall and the first increase in the benchmark rate may follow six months later.
U.S. President Barack Obama reiterated yesterday that the U.S. and its European allies stand united against Russian attempts to redraw Ukraine’s boundaries. Russia is the biggest supplier of palladium followed by South Africa, where workers have been on strike since Jan. 23rd.
Lord Adair Turner – (Bloomberg News Image)
Britain’s former chairman of the Financial Services Authority (FSA), Lord Adair Turner, spoke at Cass Business school yesterday and warned that the UK could be repeating the 2008 financial crisis by fueling the property market. He commented that mortgage and commercial property lending in global economies had played a “central role” in nearly all financial crises and post-crisis recessions.
Lord Turner told the Telegraph, “We’ve got to increase the supply of housing because otherwise we are just piling up very strong incentives to buy housing, very strong incentives to borrow money to buy housing but against a fixed supply”. “If you do that the only thing that can give is the price.”
Lord Turner warns about the debt to income ratio. “Even the Office for Budget Responsibility has said the only way we’re going to get growth back in the next five years is for the ratio to return to 170% again. If in five years time debt has gone back up to 170%, and if interest rates have returned to 3%, 4% or 5%, then a lot of people are going to be struggling.”
Lord Turner elaborated that targeted reforms to limit credit fuelled growth were needed to prevent a repeat of the 2008 financial crisis. “The policies followed before the financial crisis failed to prevent it,” he said.
“In its wake major financial reforms have been introduced. These include higher capital and liquidity standards, more effective bank resolution procedures: measures to address risks in derivatives trading: and structural reforms such as ring fencing… While these reforms are valuable, they will be insufficient to ensure a more stable financial system and economy over the long term.
“We need to recognise and contain the potential for instability which [reliance on in real estate lending] unleashes,” added Lord Turner.
“Policies relating to the supply of new real estate, and to its taxation will likely prove as important to to financial and macroeconomic stability as reforms specifically focused on the financial system itself. “[Credit cannot be] constrained through the use of the interest rate lever alone.”
With interest rates at post war lows and unlikely to go much lower the risks of further systemic events developing within our global financial centres, is again rising. It would seem that the measures taken in oversight and reporting, albeit a massive improvement on previous regulatory mishaps, are again proving porous. The rampant politicisation of interest rate policy and monetary tools are again creating new asset bubbles, most notably in the property and equity markets, which may in the end pose even greater risk than the financial dislocations of 2008.
When money is debased on an industrial scale by monetary authorities the results can soon turn catastrophic. It is essential that prudent investment strategies take these risks into account and that investors allocate a modest percentage of their portfolios to hard assets such as gold and silver.
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It would seem that the measures taken in oversight and reporting, albeit a massive improvement on previous regulatory mishaps, are again proving porous. The rampant politicisation of interest rate policy and monetary tools are again creating new asset bubbles, most notably in the property and equity markets, which may in the end pose even greater risk than the financial
dislocations of 2008.
dislocations of 2008.
Today’s AM fix was USD 1,295.00, EUR 942.09 and GBP 779.14 per ounce.
Yesterday’s AM fix was USD 1,314.50, EUR 952.74 and GBP 794.98 per ounce.
Yesterday’s AM fix was USD 1,314.50, EUR 952.74 and GBP 794.98 per ounce.
Gold bullion dropped to its lowest level in six weeks in London as better than expected durable goods hinted to a recovery in the U.S. and increased the case for the U.S. Fed to keep reducing stimulus and start to raise interest rates. Fed Chair Yellen commented after this month’s policy meeting that the bond buying program may end this fall and the first increase in the benchmark rate may follow six months later.
Britain’s former chairman of the Financial Services Authority (FSA), Lord Adair Turner, spoke at Cass Business school yesterday and warned that the UK could be repeating the 2008 financial crisis by fueling the property market. He commented that mortgage and commercial property lending in global economies had played a “central role” in nearly all financial crises and post-crisis recessions.
by fueling the property market. He commented that mortgage and commercial property lending in global economies had played a “central role” in nearly all financial crises and post-crisis recessions.
Lord Turner told the Telegraph, “We’ve got to increase the supply of housing because otherwise we are just piling up very strong incentives to buy housing, very strong incentives to borrow money to buy housing but against a fixed supply”. “If you do that the only thing that can give is the price.”
to buy housing but against a fixed supply”. “If you do that the only thing that can give is the price.”
“In its wake major financial reforms have been introduced. These include higher capital and liquidity standards, more effective bank resolution procedures: measures to address risks in derivatives trading: and structural reforms such as ring fencing… While these reforms are valuable, they will be insufficient to ensure a more stable financial system and economy over the long term.
“We need to recognise and contain the potential for instability which [reliance on in real estate lending] unleashes,” added Lord Turner.
“We need to recognise and contain the potential for instability which [reliance on in real estate lending] unleashes,” added Lord Turner.
“Policies relating to the supply of new real estate, and to its taxation will likely prove as important to to financial and macroeconomic stability as reforms specifically focused on the financial system itself. “[Credit cannot be] constrained through the use of the interest rate lever alone.”
lever alone.”Read more at http://www.maxkeiser.com/2014/03/uk-housing-boom-could-turn-to-bust-again/#0X70pmlSaQhxJ7D2.99
It would seem that the measures taken in oversight and reporting, albeit a massive improvement on previous regulatory mishaps, are again proving porous. The rampant politicisation of interest rate policy and monetary tools are again creating new asset bubbles, most notably in the property and equity markets, which may in the end pose even greater risk than the financial dislocations of 2008.
dislocations of 2008.
Today’s AM fix was USD 1,295.00, EUR 942.09 and GBP 779.14 per ounce.
Yesterday’s AM fix was USD 1,314.50, EUR 952.74 and GBP 794.98 per ounce.
Yesterday’s AM fix was USD 1,314.50, EUR 952.74 and GBP 794.98 per ounce.
Gold bullion dropped to its lowest level in six weeks in London as better than expected durable goods hinted to a recovery in the U.S. and increased the case for the U.S. Fed to keep reducing stimulus and start to raise interest rates. Fed Chair Yellen commented after this month’s policy meeting that the bond buying program may end this fall and the first increase in the benchmark rate may follow six months later.
Britain’s former chairman of the Financial Services Authority (FSA), Lord Adair Turner, spoke at Cass Business school yesterday and warned that the UK could be repeating the 2008 financial crisis by fueling the property market. He commented that mortgage and commercial property lending in global economies had played a “central role” in nearly all financial crises and post-crisis recessions.
by fueling the property market. He commented that mortgage and commercial property lending in global economies had played a “central role” in nearly all financial crises and post-crisis recessions.
Lord Turner told the Telegraph, “We’ve got to increase the supply of housing because otherwise we are just piling up very strong incentives to buy housing, very strong incentives to borrow money to buy housing but against a fixed supply”. “If you do that the only thing that can give is the price.”
to buy housing but against a fixed supply”. “If you do that the only thing that can give is the price.”
“In its wake major financial reforms have been introduced. These include higher capital and liquidity standards, more effective bank resolution procedures: measures to address risks in derivatives trading: and structural reforms such as ring fencing… While these reforms are valuable, they will be insufficient to ensure a more stable financial system and economy over the long term.
“We need to recognise and contain the potential for instability which [reliance on in real estate lending] unleashes,” added Lord Turner.
“We need to recognise and contain the potential for instability which [reliance on in real estate lending] unleashes,” added Lord Turner.
“Policies relating to the supply of new real estate, and to its taxation will likely prove as important to to financial and macroeconomic stability as reforms specifically focused on the financial system itself. “[Credit cannot be] constrained through the use of the interest rate lever alone.”
lever alone.”Read more at http://www.maxkeiser.com/2014/03/uk-housing-boom-could-turn-to-bust-again/#0X70pmlSaQhxJ7D2.99
Why do people believe the myth?
By Liberta: In my previous article I explained why buying a house is often a very silly financial decision, especially for people who are young, or those that have a low net worth.In this article I’m going to explain why I think people are so infatuated with the idea of buying and owning a house, even though, if you look a the facts, it goes against many of the investment principles they believe in and hold dear.
But first, I need to address one of the myths about buying residential property, which was brought up in the comments section of my previous article.
Myth #1: Buying a house is a way to beat inflation
The theory is:It is worth borrowing a huge amount of money to purchase a house because, not only will your property appreciate in value over time, your loan amount will also decrease in value in record time, partly because you are paying off a bit of your loan every month and partly because inflation eats away at the value of the amount you still owe!
And it is true – borrowing R1,000,000 to buy a house may seem like a scary amount right now, but a few years later, R1,000,000 will be considered a small amount of money.
If you would like to see just how effectively inflation destroys the value of money over time, plug a few numbers into the inflation calculator and see for yourself.
I have to admit: this theory makes for a very convincing argument.
But it is not.
The elephant in the room
The hole in the buying-a-house-is-a-way-to-beat-inflation-theory is the fact that the interest rates commercial banks charge their customers have always been higher than the inflation rate.If you take out a loan, you pay more in interest to the bank, than you gain through the devaluation of the amount outstanding on your loan due to the effects of inflation.
The only real winner in this equation is the bank who was kind enough to grant you a loan to buy your property.
And when I say winner, I really mean it, because not only is the bank earning an above inflation return on the money they lend to you, they also create the money they lend to you, right there on the spot, out of thin air.
If I had to behave like a bank and you were a customer to whom I was granting a home loan, it would be pretty much the same as if I had a printing press in my basement, where I would quickly print up R1,000,000 in counterfeit currency to lend to you, make you sign a contract with dire consequences to yourself should you ever miss a loan payment and then, to make sure I get the best deal possible, charge you an above inflation interest rate on the counterfeit money I lend to you.
If you or I behave like this, it is called a scam and, of course, it is illegal.
When banks behave like this, it is called fractional reserve lending and, whether you like it or not, it is perfectly legal.
The wonders of fractional reserve banking
I know what you’re thinking.
But this is no conspiracy.
The fact that commercial banks create money when they grant loans is not a secret.
Not at all.
In fact, commercial banks create over 90% of all the money that circulates in our economy. It is just the way the system works.
If anything is suspicious, it is the fact that everybody uses money, but almost no-one understands where the money they use comes from.
How to make money from a Residential Property Boom
Once you understand the way the system works, you’ll understand that one of the best ways to make money out of a residential property boom is not to invest in residential property, but to invest in commercial banks that grant loans to people who buy residential properties.During a residential property boom, banks are creating massive amounts of money out of thin air and lending it out, with interest, to many many customers who are lining up to buy the rapidly appreciating residential property.
If you own a part of the banking action, you can make a lot of money while the boom lasts.
There is only one problem with this approach: like all good parties, it eventually comes to an end and, the next day, you wake up with a massive hangover.
Booms usually lead to bubbles, and bubbles eventually pop. When bubbles burst , the very same banks who were raking in record profits just a few months prior to the bubble bursting are all suddenly bankrupt. A good example is the 2008/2009 housing bubble collapse.
But have no fear.
There is an even better way to make money out of a residential property boom, with just about zero risk:
At the start of a housing boom, find a job with a commercial bank and negotiate your salary in such a way that your bonus is linked to the profits the bank makes on residential property loans.
Trust me. It’s a slam-dunk.
So, who is spreading the propaganda?
This is pure speculation, but since bankers are the main beneficiaries of the fractional reserve banking system, I won’t be at all surprised if they are also the main players responsible for spreading propaganda about the home ownership myth I have attempted to debunk with these articles.And if you’re a banker, who better to get on your side than the government?
Much has been written about the way politics work (especially in America), how lobbying costs money and how big business is the main contributor to political campaigns, so I’m not going to add my own thoughts here.
What I will say is this: if these concepts are new to you, perhaps it’s worth re-reading this article one more time. Perhaps click on some of the links and watch the youtube videos to make sure you understand everything.
Then, if you just want to feel patriotic and inspired, take a look at the video below. I’m sure you’ll love it. It nearly drove me to tears. Heart wrenching stuff.
Over to you
When, after many years of being an investor, I finally figured out how the monetary and banking systems work, it massively changed my perspective on investing.Since the money we use is something that affects everybody on a daily basis, I find it astounding that so very few people understand where money comes from. I encourage you to do your own research. Reach your own conclusions.
In wrapping up, I’d once again like to extend the same request as I did in the previous article in this series:
If you disagree or find a flaw in my logic, please leave a comment below. I’d love to be proven wrong, and I’m willing and eager to consider any counter arguments.
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