Financial Armageddon!!

[WINZ]

The big problem and i mean BIG, is the level of personal debt or mortgage lending and more importantly the massive volumes of money we are talking about with these mortgages. There is no room for movement when things go bad. Davo is right its going to be massive, plenty of people will lose plenty of shirts! Its going to kick off in Aussie first then hit our shores.
We are in the early stages now, even though most people would have no idea.

It's more than this Chook. It's completely systemic as our system requires more and more capital (read: debt) in order to inflate asset prices in order to reduce volatility and maintain stability. The problem with this is that high debt volumes was the cause of our previous crises and Central Banks responded with a double-hit of low interest rates and quantitative easing (excess bank reserves) which led to a massive hosing of debt liquidity into the system.

From what I understand a small contraction in our money supply will have a massive flow on effect to asset prices. This is somewhat akin to chaos theory (i.e. a butterfly flaps its wings and causes a hurricane in the distance). Once asset prices begin to turn and fall then you see a race to the narrow exits (panic) which further drives prices down.

My biggest fear is the timing of this next downturn is far more inconvenient than the previous ones, i.e. you have a large swathe of the population (baby boomers) heading into retirement with almost all of their capital tied into real-estate and financial assets.

I couldn't warn people enough how severe this turn in the cycle will be. This will be my last warning and I need to spend more time learning how to mitigate the downside.

[Perry]

For the baby boomers who have rentals of whatever sort, the problem will only be: can the tenants afford the rent?

The underlying asset figure (value?) is irrelevant.

[Memphis Turnkey Property]

It's hard to find solid evidence of the sky is falling scenario. There are fewer people with silly debt now than the GFC and people are using much cheaper interest rates so debt servicing is easier. Where is there any evidence of massive debt increases with no room to move?

[Perry]

Where is there any evidence of massive debt increases with no room to move?

As one blessedly free of any such debt, I'm not qualified to answer.

[Nick G]

The homeowner market in Auckland?

It's hard to find solid evidence of the sky is falling scenario. There are fewer people with silly debt now than the GFC and people are using much cheaper interest rates so debt servicing is easier. Where is there any evidence of massive debt increases with no room to move?

[Memphis Turnkey Property]

The homeowner market in Auckland?

But what evidence is there of "no room to move"? I can't find many stressed owners in Auckland, (and I am looking all the time). Low interest rates make a huge difference to real estate.

[Learning]

My post disappeared? Take two-
Perhaps most aren't felling financially stressed because the current situation has become "normal". They dont realize how little room they have to move. How quickly will the stress come if things change?

I've just left my job and have gone freelance. Invoicing at the end of the month and getting paid at the end of the following month means for the first two months at least, I'm effectively working for nothing more than a promise. Most people I've spoken to have said they couldn't afford to lose their income for one month let alone two. I'd call that no room to move.

[eri]

the new 5 party coalition gov in italy

has decided to pretend spending more than you earn

isn't a problem, esp. when spending german? money

banking on the theory

that they are too big to fail

but the eu are getting sick

of being fed insincere lies

Italy's insurgent coalition has warned of a financial cataclysm of global proportions if the eurozone authorities reject the country's budget plans and ratchet up economic stress as a tool of pressure.

Draghi expressed alarm over the budget fight, warning that politicians in Rome are vastly underestimating the delicacy of the situation as the ECB winds down its bond purchase programme over the next three months.

"Italy will have no safety net," he is reported to have said.

The coalition is infuriated by a Reuters story citing anonymous EU officials and diplomats in Brussels warning that Italy faces "massive debt restructuring" on its €2.3 trillion ($4.1t) public liabilities on the current course.

Moody's and Standard & Poor's will issue their verdict on Italy's sovereign debt rating over the next month.
A one-notch downgrade might be manageable.
If the markets start to fear further slippage to junk status, it would set off a mass exodus by foreign investors.
The Norwegian pension fund, the world's biggest investor, said yesterday that it would be forced to liquidate its holdings of Italian debt under its mandatory guidelines if the country falls below investment grade.

The lesson of the Greek crisis is that it does not pay to be the last out of the door when things go wrong.

https://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=12138087

[Perry]

Will there be - is there? - any significant difference between an Italian comic opera five party coalition and a NZ comic opera three party coalition?

Aside from a non-EU connection.

[Davo36]

Eri, nothing happens when these countries default as far as I can see. They just get handed bigger loans and they carry on with the party.

Same as the banks, companies employing large numbers of people etc.

[eri]

yes, it is interesting the lack of moral hazard

which is kind of why the us regulators let lehman go down...

however, countries, esp. "prestigious" countries

seem to be able to get away with it

but can't quite escape the feeling that it's all going to come to a bad end

if they can't start balancing the books...

meanwhile greece still has 20% unemployment 10 years after the crash

while the usa is about 3.5?% the best it's been for 50? years

[Perry]

Remind me, which Emperor is it that does not have any new clothes?


Image credit: https://www.spectator.co.uk/

[Davo36]

yes, it is interesting the lack of moral hazard

which is kind of why the us regulators let lehman go down...

however, countries, esp. "prestigious" countries

seem to be able to get away with it

but can't quite escape the feeling that it's all going to come to a bad end

if they can't start balancing the books...

meanwhile greece still has 20% unemployment 10 years after the crash

while the usa is about 3.5?% the best it's been for 50? years

Well the measurement of unemployment has been changed over the years to make it look as low as possible. In NZ it's supposedly 4.5% but there are like 500k part time employed... https://tradingeconomics.com/new-zea...ime-employment

And if you are not really looking then you aren't counted! So if you haven't been to a job interview in 4 weeks, then you are not unemployed because you aren't looking!

So the numbers are BS in my view.

[PC]

Sort of like - inflation is less than 3%?

[chook]

But what evidence is there of "no room to move"? I can't find many stressed owners in Auckland, (and I am looking all the time). Low interest rates make a huge difference to real estate.

You have no idea Dean, look how many people you took down with you in the last crash with your mad FIJI sections, before running away to the US