Yep,

Can't argue with this one.

Only one comment.

Beware, markets can stay irrational longer than you can stay solvent.

Nice piece Philip and very well researched.

A lot of interesting and useful information.

I wrote to Treasurer Costello in 2004 on this subject. I had written in a similar vein as early as 1998.

On the Channel 9 program Business Sunday on Sunday 9th May the Chief Executive of National Australia Bank made the comment that the NAB along with other banks was aiming to increase credit by about 13% pa.

While such an increase might not immediately directly increase product costs and consumables prices to a significant degree it will certainly lead to increases in land and other asset values which will feed through into increases in rent and similar costs.

The banks themselves are pressing to increase all costs and charges to their customers and thereby increase their profits and their ability to create Tier 1 capital from retained profits while still paying out increasing dividends. Banks are now resorting to unusual types of overseas fund raising to increase Tier 1 capital not long after using Australian dollars for a share buy back (managerial option holders benefit more than normal shareholders from a buy back).

I am unable to see that allowing banks to create excess credit is preferable to government deficit or loan financing of worthwhile national infrastructure projects of which the Snowy Scheme was a prime example.

Central banks were created to prevent bank failures resulting from banks creating excess credit. Statuary reserve deposit ratios and bank held government securities were used to guarentee� the banks financial stability and to limit the bank systems ability to create virtually unlimited credit. History tells us that it is not sensible to rely on any particular banks prudential common sense. An example would be Westpac between about 1984-1990.

The excess credit being created at present has led to significant property value increases and to inflated share prices in what is an unproductive section of the sharemarket, the banks and financial services section. If Australia is to have a genuine and affordable increase in real living standard we need to reduce the cost to productive industries such as farming and manufacturing of the parasitic services such as banking, financial and legal services.

Another good article Philip, with loads of data and clear evidence.

You ask have property prices fallen enough? Not if our governments have anything to do with it. They have bent over backwards in recent years to restrict the supply of affordable housing (land) whilst at the same time pouring as much demand fuel as possible into and onto established suburbs with decent infrastructure.It's both what they have done (by legislative change) and what they have failed to do. Examples include increasing population without increasing infrastructure, the opening up of the residential property market to foreign investors via changes to FIRBs rules (2009) and more recently, allowing SMSFs to leverage into and speculate on "investment" properties. All totally unnecessary and undesirable in markets that are already unaffordable for 95% of us. Where other countries are putting limits on their banking industries post GFC via macro-prudential change (limiting LVR ratios, etc.) there is no impetus to do so here. Etc. Etc. Etc.