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The Forum > General Discussion > Toxic Loans Are Only a Symptom of Our Malaise

Toxic Loans Are Only a Symptom of Our Malaise

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Money only represents human potential.It is just an idea or the oil that lubricates the economic engine.With Globisation came the enticement of cheap goods and the loss of manufacturing in the West.So the concept of free trade has put many western countries in serious debt.

We have a Balance of Payments debt over $600 billion,even with record sales of resources.For very working person we have a foreign debt of $60,000.00.Just the interest alone is almost $6,000.00 pa for each working person.The cheap products from Asia have a surrepticious price which we have ignored at our peril.This debt is compounding every year.

Our failure to nurture home grown industry in the persuit of hedonestic short term gratification is reflected in this present reality.

China actively backs and encourages home grown industry,we put every legal,union and Govt obstacle in it's way to ensure it's demise locally.We are in so much debt that we cannot afford basic infrastructure.The surplus in the future fund used to be $90 billion.It is now halved.$700 billion would be needed just to back bank deposits.

Our debt per person is very similiar to that of the US.We should not be too smug in assuming that our more regulated banking system will save us.
Posted by Arjay, Monday, 13 October 2008 10:23:03 PM
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Money actually represents debt because that’s how money is created in the modern monetary system.

The concept of money (as most understand it) is fundamentally incorrect and has changed over time.
Cash is no longer a token that is backed up by Government-held gold or silver and each dollar of capital now supports (and represents) somewhere between 20 and 30 dollars of debt. Only 3% of America's capital exists in hard currency. The rest is on paper or in cyberspace.

The notion that this global financial calamity has been brought on soley by a number of people who couldn’t meet their mortgage obligations is not seeing the big picture. It's the property bust that brought the overall problem out in the open.
The assets (subsequently of lesser value) are still there and effectively owned by the lending institutions. It is they who have lent more money than they had but it’s we who now have to shoulder the burden and bail them out.

Globalisation is just one of the things that made this possible. Greed and consumerism is another – but it’s the system itself that’s flawed. We have just witnessed an era where the media actively promoted a “get in now or miss out” and “get rich quick” sentiment and corporate CEOs remuneration over the last 25 years has risen from representing 45 times to 400 times the average workers annual salary.

It was never going to last.

Now where the Banks are going to get all this bail-out money?
When the US government wants money, it issues Bonds to their Reserve Bank. The Reserve in turn "creates" the money on their behalf.

Therefore the bail-out money comes from the Banks themselves, with a new era of rising inflation as a result.
Posted by wobbles, Tuesday, 14 October 2008 2:37:39 PM
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I have always considered "money" to represent "deferred consumption".

Problem is the deferrment comes with some inherent costs called "inflation".

One way of avoiding the "deferment costs" is to borrow up and consume in advance.

During times of inflation the net beneficiaries are those who can borrow, such as house owners. They watch the value of their house increase with time, a hedge against living in a rented house and leaving their residual savings in a bank account.

Again the whole basis of Negative Geared investment applies a similar rule of an inflationary benefit hedge.

For those with "balls of steel", they can even borrow up big and pursue a margin scheme, investing heavily today in share which are down along way from where they were yesterday and selling tomorrow at a handsome profit.

Be a wicked speculator, you might clean up and you will be doing a public service in stabalising share prices which have been in freefall.

On the other hand you might loose all you have and them some.

(Like I said, Balls of Steel)

The difference between a boom and a recession is the amount of confidence ordinary people have in their immediate future.

Krudd and Co are managing by knee jerk,

Just last March it was "the devil inflation" and we must trim spending by building a budget surplus and hiking up interest rates to take the heat out of the bursting economy.

Today it is totally the opposite,

reduce interest rates as fast as possible and Our Kev playing lady bountiful with $10billion worth of taxpayer sweeteners, to pump-prime and restart "the ailing economy".

Well the helcian days of Liberal financial management are further in the past, Kev and Co are getting used to doing donuts in the vehicle of state.

They say a week is a long time in politics.

I wonder what next week will bring?

More 720 degree spin outs and knee-jerks from the all-pro team of Jerks.
Posted by Col Rouge, Tuesday, 14 October 2008 3:01:49 PM
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The system you describe was turbo-charged in 1974, when the World moved from Brenton Woods (1944)to protect the US from offshore liabilities.
Posted by Oliver, Tuesday, 14 October 2008 7:39:06 PM
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Arjay, you have to separate our current account and our trade
account here. Our trade account is actually not so bad, but our
current account is bad, due to Australians not saving much.

So we borrow huge amounts offshore, on which we have to pay interest,
or dividends from Australian companies, which are paid to investors

IMHO one reason why Australians don't save much, is because our
taxation system gives them no incentive to save, so they would
rather spend it.

If the bank pays you 7% on your fixed deposit, inflation will
take half of it, taxation the other half. So you are effectively
left with nothing in real terms.

If Govt allowed for inflation in their calculation of taxation,
there would be a real incentive to save, but they don't, as they
make too much money from it. So instead, we borrow those funds
from nations where there are plenty of savers, like SE Asia.

The more we borrow, the larger our current account deficit.
Posted by Yabby, Tuesday, 14 October 2008 9:51:13 PM
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According to the Bureau of Statistics, our current account deficit, as of the June quarter 2008, is $12.8 Billion.

I'm not sure where you got your figures but they don't seem right at all.


You say >> " failure to nurture home grown industry ... "

Absolute rubbish. From federation until the Keating Era, Australian gov'ts sought to give local industries an advantage by instituting tarrifs. This protection from the real economy meant not only did Australia have to pay higher prices for our manufactured goods. But our industries, which no longer needed to be competitive, rusted away. No one looked at new and better ways to do things because they were insulated from competition. When they were finally exposed to competition many failed. The rest caught up fast and today we can compete globally. The manufacturing sector has GROWN from 10.1% in 1983-1984 to 17.8% in 2003-2004.

Your analysis of the global economic crisis is off the mark. Debt which finances capital growth is an investment and a good and proper use for that facility. The problem, as pointed out by others isn't so much that the lenders were allowed to lend way more than they had on deposit, it is that the bottom fell out of housing market. The assets which the bank held to secure the loans were no longer sufficient to cover the coast of the loan. This caused a chain reaction.

The other problem was the mortgage backed securities, which separated the borrower from the holder of the loan. Banks and other financial organisations did not know to what extent they were exposed to the American mortgage market and hence to the subprime fiacso.

Without the subprime lending, which is the fault of the banks and their customers, and the repacking of these mortgages into MBS securities we would not be in this predicament today.


I usually agree with you on economic matters, however I wonder how you can suggest that we should let the banks etc collapse when it could lead to a collapse of the entire financial system
Posted by Paul.L, Wednesday, 15 October 2008 2:33:36 PM
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