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  1. #11
    Join Date
    Jan 2004
    Location
    Whangarei
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    5,867

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    In 04-06, I never had problems getting paid but I do now. I've increased the size of the deposit I ask for now. Been caught out quite badly a couple of times this year.

    The property boom was no different to any other sort of boom. Shares, ostriches, gold, kiwifruit, amway or whatever. Enthusiasm eventually reaches a point where it turns to "irrational exuberance" and some people get burned.

  2. #12
    Join Date
    Jun 2005
    Location
    Auckland
    Posts
    5,086

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    Booming property markets are highly destructive to the real economy. They consume resources both internally & externally & when they collapse, they cause massive collateral damage.
    Very Droll
    DFTBA

  3. #13
    Join Date
    Sep 2004
    Location
    Hastings
    Posts
    14,850

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    Quote Originally Posted by LKSteve View Post
    Booming property markets are highly destructive to the real economy. They consume resources both internally & externally & when they collapse, they cause massive collateral damage.
    Quote Originally Posted by cube View Post
    Very Droll
    Real economy? What economy? Interesting.

    First: why is it destructive?

    Second: why is the commentary droll?

    On "destructive," is that a cause or is it an affect?

    I see it as an effect. Economic policy makes most
    any other form of savings more a throwing good
    money after bad
    activity. As I see it, people get
    'into property' because of bad economic policy,
    then property prices increase because people get
    into property, then Tweedle Key & Dipton Dum
    blame PIs and attack them via budgets and such,
    instead of dealing with the first cause - their own
    flawed economic policy that was the catalyst
    for the, ahhh, "mis-allocation of capital crisis."

    Take $100 - put it on term deposit for 12 months
    @ 5%. At year end, pay $1 in tax, leaving $104. If
    inflation is (say) 4% (one imaginary figure used
    by the W'gton woodenheads), then that's the
    other $4 'lost.' So, 12 months later, a cash saver
    is left with $100 that will only buy $96 of goods
    and paid $1 in tax for the privilege of losing $4
    of purchasing power.

    Now the mathematically endowed will say those
    percentage figures aren't quite right. I agree. I use
    them to make a point, accepting slight inaccuracies.

    The main point being that bad economic policies
    are the the main bad economic drivers, impelling
    people towards real estate, in an effort to preserve
    the purchasing power of their savings. Not the other
    way around.

    The numbskulls in W'gton will never 'get it,' because
    they're experts; where x is an unknown quantity and
    spurt is a drip under pressure.
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  4. #14
    Join Date
    Feb 2008
    Location
    Melbourne, Australia
    Posts
    277

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    For destructive outcomes of property booms refer to the U.S, the U.K, Ireland, Portugal & Spain. The Greek problem stems not so much from a property collapse but from endemic corruption.

    I'm not mathematically endowed so won't be picking your figures apart other than to say that 25% tax on interest earned doesn't sound right. We pay higher than that on our term deposit in New Zealand.

    I don't disagree with your statement about bad economic policies being the cause either. Certainly the big tax advantages of property investing attracted investors like bees to a honey pot. Rates of taxation are determined by the government of the day, mindful that if they make life too hard for the voters, they will be toast come next election time. When the chickens come home to roost in New Zealand / Australia the people will have no one to blame except themselves. The funny thing is the people will likely turn on the political class as the Irish have & blame them, instead of themselves.
    Last edited by Perry; 10-12-2010 at 10:35 AM.

  5. #15
    Join Date
    Jan 2004
    Location
    Whangarei
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    5,867

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    LK Steve - the US, UK and Oz did not have the same tax policies that we had during the boom. It was fueled by cheap lending far above tax policy.

  6. #16
    Join Date
    Feb 2008
    Location
    Melbourne, Australia
    Posts
    277

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    Quote Originally Posted by drelly View Post
    LK Steve - the US, UK and Oz did not have the same tax policies that we had during the boom. It was fueled by cheap lending far above tax policy.
    OK, I didn't say that the US, UK & Oz had 'the same tax' policies as New Zealand, I said to refer to those countries for destructive outcomes. Every countries economy is different as are their tax regimes. For several years Ireland's government engaged in reckless tax policies which effectively stoked an already booming building industry to even greater heights. The were repeatedly warned that they needed to reign in the boom but greed got the better of them, there was no such tax incentivized building boom in New Zealand or Australia & I'm not suggesting there was.

    In my opinion cheap money was & still is a factor in the Kiwi/Aussie property boom. Real interest rates - the yields savers earn over the actual rate of inflation (not the artificially low numbers provided by government bureaucrats) have been negative for several years now. This will change. Rates will rise as sure as night follows day & that will be what snuffs out the property boom, at least in New Zealand / Australia.

  7. #17
    Join Date
    Mar 2007
    Location
    Auckland
    Posts
    3,021

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    Not so sure about interest rates rising.

    Interest is the price of money.
    Less money around and the greater the demand, interest rates will rise.
    The more money around to borrow, and the less the demand, interest rates should drop.

    If 'everybody' has spare cash and wants to lend it out then 'nobody' will want to borrow and interest rates will drop to zero. That happened in the UK in the late 1940s.

    Right now, individuals and businesses are, and are being encouraged to, consume less save more and pay off debt.

    So logically this should lead to static or lower interest rates as demand decreases and supply increases.

  8. #18
    Join Date
    Sep 2004
    Location
    Hastings
    Posts
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    I'll go along with the 'destructive' aspect,
    in regard to the economy. But it's the
    primary cause of that destruction that
    seems to be in the blind spot of all and
    sundry in the beehive.

    I chose a modest tax rate intentionally.
    Some will pay more, some less. If the
    tax rate is higher, it only exacerbates
    the problem I was trying to portray, in
    my rudimentary hypothesis.
    .
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  9. #19
    Join Date
    Feb 2008
    Location
    Melbourne, Australia
    Posts
    277

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    Quote Originally Posted by flyernzl View Post
    Not so sure about interest rates rising.

    Interest is the price of money.
    Less money around and the greater the demand, interest rates will rise.
    The more money around to borrow, and the less the demand, interest rates should drop.

    If 'everybody' has spare cash and wants to lend it out then 'nobody' will want to borrow and interest rates will drop to zero. That happened in the UK in the late 1940s.

    Right now, individuals and businesses are, and are being encouraged to, consume less save more and pay off debt.

    So logically this should lead to static or lower interest rates as demand decreases and supply increases.
    I think you are forgetting inflation. With all this easy money sloshing around, prices will start rising, it's already happening in commodities. This will feed into higher prices at the petrol pump & everywhere else. Inflation is a hugely destructive force once it breaks out of 'target levels'. The only way to keep it in check is restricting money supply & raising interest rates. The opposite of what's been happening for the last decade.

  10. #20
    Join Date
    Sep 2004
    Location
    Hastings
    Posts
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    Default

    Does increasing excise & GST qualify as
    a money supply restrictor, I wonder? Or
    does that add to inflationary pressures?
    .
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