All posts by Bryan Kavanagh

I'm a real estate valuer who worked in the Australian Taxation Office (ATO) and Commonwealth Bank of Australia (CBA) before co-founding Westlink Consulting, a real estate valuation practice. I discovered, by leaving publicly-generated land rents to be privately capitalised by banks and individuals into escalating land price bubbles, this generates repetitive recessions and financial depressions. We need a tax-switch: from wages, profits and commodities onto economic rents/unearned incomes, if we are to create prosperity and minimise excessive private debt.

“DEFINING POINT IN INDUSTRY POLICY”

SPCA

No $25 million bailout for SPC Ardmona.

The Abbott government has rejected providing assistance to the company, although there was cabinet division on the question.

Treasurer Joe Hockey is said to have led the dries, arguing that taxpayers should not bail out SPCA when its parent company Coca-Cola Amatil turned a $215 million profit in the first six months of the current financial year.

The decision was characterised as “a defining point in industry policy”.

No doubt this decision will remain the criterion when Australia’s Big 4 Banks start collapsing when Australia’s bubble-inflated land prices tank.   🙂

BILL BONNER IN TODAY’S “DAILY RECKONING”

Why Things Will End Badly for Investors in US Stocks

by Bill Bonner

Yesterday, we reported on the latest money woes in Argentina. Today, we turn back to the US.

The Dow caught a bid yesterday, with a 90-point rise, bringing it to rest at 15,928.

That’s 15,017 points higher than the low it hit in 1981, just after Ronald Reagan was elected. In 1982, US stocks began a sustained and spectacular rise. Over a 33-year period, the market value of America’s most important corporations rose nearly sixteen-fold.

But wait, did we say ‘value’? We meant price.

Prices are notations, bearing relative information. If you buy a stock at $100 that rises in price another $50…and your brother-in-law’s stock went up to $200, your brother-in-law just got lucky. You wisely bought the more conservative stock and protected your family from the risk. Good on you.

But if consumer prices double…or triple…over the same period, you and your brother-in-law are both chumps.

Of course, it is notoriously difficult to say exactly how much consumer price inflation there is in an economy. Any answer comes with caveats and health warnings.

Argentina’s official inflation number, for example, needs more than the usual boilerplate. Officially clocked at 10% for the last few years, the real annual rate, according to Johns Hopkins professor Steve Hanke, is 63%.

If so, wages, dividends and asset prices all have to be adjusted downward. Based on Hanke’s number, almost all the Argentines are chumps, as almost no asset or income stream can keep pace with the falling value of the peso.

In the US we don’t have to worry about such high inflation rates. We have the Federal Reserve, charged with the mission – among others – of making sure we have a ‘stable currency’.

Back when that job was confided to it, in 1913, there seemed little doubt that it would be up to the task. Consumer prices in the US had been more or less stable since the founding of the Republic.

There had been periods of rising prices – such as the War Between the States – and periods of falling prices – such as the last quarter of the 19th century. But consumer price inflation never developed a real purchase in the US until the Fed was set up to prevent it.

Since then, it has been off to the races.

It would be easy to explain this phenomenon simply as ‘the Fed printed too much money’. But that is not the way it works (at least not these days).

The Fed can add to the monetary base by injecting reserves into the banking system. But this ‘state money’ is only about 15% of what is measured as the wider ‘money supply’…and it doesn’t leave the banking system.

The rest is ‘bank money’. It’s money that is created privately by banks.

These days, banks create this kind of money ex nihilo when they make a loan. If you borrow $100,000 to build a house, for example, a bank simply creates a deposit of $100,000 out of thin air. (The reserve ratios of the financial system these days are so small that they play practically no role at all in constraining credit creation.)

If a bank made 10 loans like this, it would add $1 million to the money supply, which consumers would then spend. Assuming prices are set by supply and demand, this $1 million in new money supply would weigh in on the demand side. Prices would rise, signalling to producers that it is time to increase supply.

Multiply this phenomenon millions of times. Add Alan Greenspan and Ben Bernanke’s ‘party time’ invitations. Mix in the rise of cheap Chinese manufacturing to keep consumer prices and wages down. And don’t forget the bank bailouts…implicit central bank support for stocks…near-zero interest rates…and $4 trillion of QE from the Bernanke Fed.

There you have the potent highball that made so many investors giddy…and brought so much new wealth to the already wealthy.

Fifteen thousand points on the Dow were added in a single generation. More than had been accumulated during the seven generations before.

What made Americans suddenly so smart and so successful?

Or were they?

Stay tuned…

Regards,

Bill Bonner
for The Daily Reckoning Australia

 

DIRK LOEHR

DirkLoehr

 

 

Karl Fitzgerald interviewed German Professor Dirk Loehr on 3CR’s Renegade Economists yesterday. The engaging wide-ranging 30 minute interview touches on Marx, Engels, List, Michael Flurscheim and Silvio Gesell, before moving onto current gentrification pressures in Munich and Berlin and the activist response for land value taxation -> http://www.grundsteuerreform.net/ (Google translate).

See also the English version of Dirk’s Loehr’s Rent-grabbing site.

 

 

 

 

UPDATED HOUSING PRICE INDEX

I look forward with great anticipation to Philip Soos’ and Paul Egan’s upcoming definitive book about Australian real estate. It promises to be a beauty!  ->

Philip_Soos_HPI (2)

BRAINY QUOTES: HENRY GEORGE

GEORGE1Brainy Quote.com

HENRY GEORGE

What has destroyed every previous civilization has been the tendency to the unequal distribution of wealth and power.

He who sees the truth, let him proclaim it, without asking who is for it or who is against it.

How many men are there who fairly earn a million dollars?

Man is the only animal whose desires increase as they are fed; the only animal that is never satisfied.

That which is unjust can really profit no one; that which is just can really harm no one.

There is danger in reckless change, but greater danger in blind conservatism.

How can a man be said to have a country when he has not right of a square inch of it.

Let no man imagine that he has no influence. Whoever he may be, and wherever he may be placed, the man who thinks becomes a light and a power.

The methods by which a trade union can alone act, are necessarily destructive; its organization is necessarily tyrannical.

Poorly paid labor is inefficient labor, the world over.

Progressive societies outgrow institutions as children outgrow clothes.

The man who gives me employment, which I must have or suffer, that man is my master, let me call him what I will.

The march of invention has clothed mankind with powers of which a century ago the boldest imagination could not have dreamt.

Capital is a result of labor, and is used by labor to assist it in further production. Labor is the active and initial force, and labor is therefore the employer of capital.