Hereby I will prove how the realty boomers arguments are false.

What are the boomers arguments?

1.) Buy today, houses always increase in value in the long run.
WRONG. House prices cannot increase more than incomes in the long run. This is obvious if you think about it. If house prices go up more than people can afford to pay, buying stops, like it has stopped now.
Even Warren Buffett have pointed out that houses don't increase in intrinsic value. Unless there's a bubble or a crash, house prices simply reflect current salaries and interest rates. If a house is 100 years old, it's value in sheltering you is exactly the same as it was 100 years ago. Then came the maintenance as the house didn't renovate itself. It also has taxes, and insurance - costs that always increase and never go away. The price of the house went up about as much as salaries went up.
To put this is simple perspective, vegetable were costing Rs.5-6/kg when 5 digit salary was a rarity.
Today, the prices have gone up by about 4 times but so have the salaries. So, sounds very much like the reasoning people use now when they talk about how much their father's house appreciated "in the long run" without considering that salaries rose a proportional amount.

2.) Renting is just wastage of money.
WRONG. As said before renting is now much cheaper per month than owning. If you don't rent, you either:

* Have a mortgage, in which case you are throwing away money on interest, tax, insurance, maintenance, costs that increase forever.
* Own outright, in which case you are throwing away the extra income you could get by converting your house to cash, investing in bonds, and renting a similar place to live for much less money. This extra income is sufficient for emergency expenses,retirement etc.

Either way, owners lose much more money every month than renters and that's assuming prices don't correct to very high level & everything is smooth in the economy.

3.) As a renter, you won't have any money left as you will spend them on vacations,cars & hence won't have equity/savings etc.
WRONG. Equity is just money. Renters are actually in a better position to build equity/savings through investing in anything but housing. Renters can get rich much faster than owners, just by investing in conservative stocks & bonds.

* Owners are losing every month by paying much more for interest than they would pay for rent. The tax deduction does not come close to making owing competitive with renting.
* Owners must pay taxes simply to own a house. That is not true of stocks, bonds, or any other asset that can build equity/savings. Only houses are such a guaranteed drain on cash.
* Owners must insure a house, but not most other investments.
* Owners must pay to repair a house, but not a stock or a bond.
* Owners lose their money as house prices reduce. The EMI's remain constant in spite of reduction in rates. At the end of loan tenure, they would have paid almost twice than that of current renters who will buy at logical rates. Keep interest rates in mind. Most of the EMI is not principal amount but interest.

4.) There are great tax advantages to owning a house.
WRONG. Many people believe you can just reduce your income tax by the amount you pay in interest, but they are wrong. Buyers may not deduct interest from income tax; they deduct interest from taxable income. And even then, the tax advantage is not significant compared to the large monthly loss from owning.

If you don't own a house but want to live in one, your choice is to rent a house or rent money to buy a house. To rent money is to take out a loan. A mortgage is a money-rental agreement. House renters take no risk at all, but money-renting owners take on the huge risk of falling house prices, as well as all the costs of repairs, insurance, property taxes, etc.

5.) RE is based on local factors, it's not a national phenomenon. RE of Delhi-NCR,Bangalore & rest of the cities has nothing to do with Pune RE.
WRONG. Lending rates remain the same throughout the country. ALL loans are harder to get. This will drive prices down everywhere.

6.) A rental house provides good income. So, you can rent if you have purchased as investment.
WRONG. Rental houses provide very poor income in hyped areas and certainly cannot cover mortgage payments. Remember there is almost 300% difference between EMIs & rent for the same house.

It's pointless to do the work of being a landlord if you can make more money with no risk, no work, and no state income tax by investing in assured good returns bond.

7.) If owning is a loss in monthly cash flow, but appreciation will make up for it.
WRONG. Appreciation is negative. Prices are going down. It only adds to the injury of already high EMI's.

8.) As soon as prices drop a little, the number of buyers on the sidelines willing to jump back in increases.
WRONG. There are very few buyers left, and those who do want to buy will be limited by increasing difficulty of borrowing now that many house owners are near bankrupt as they don't save anything at the end of the month due to high EMI's.
No one has to buy, but there will be more and more people who have no choice but to sell as their payments rise. That will keep driving prices downward for a long time.

9.) House prices never fall atleast in Pune.
WRONG. If you see the RE scenario of 1996, prices crashed by 50% & took a whole 7+ years to recover.
Exact 1996 scenario may not be there today but strong correction is inevitable across the city.

10.) House prices don't fall to zero like stock prices, so it's safer to invest in real estate.
WRONG. House prices won't be zero, but the equity or the principal amount you paid can be zero or even negative. What you will pay as EMIs later in actual terms is not for the principal amount but only the interest as house prices dip. So, you will be only serving the bank.

11.) Prices will soften gradually, won't crash immediately.
WRONG. Prices are falling off a cliff. No one knows exactly what will happen, but it looks like prices will continue to fall for long time. These are just more manipulation of buyer emotions, to get them to buy even while prices are falling.

12.) The bubble prices were driven by supply and demand alone.
WRONG. Prices were driven by low interest rates and risky loans & good returns for investors in initial phases of boom in 2004-05.
Prices went up, interest rates went up & buyers savings went down. So prices are violating the most basic assumptions about supply and demand.

13.) There is lack of land.
WRONG. Ample of land is available & continue to be even in future in Pune. Sales volume are down. Even in Japan (small country with less land), prices went down. Current prices here are the same as that of 23 years ago. If we really had a housing shortage, there would not be so many vacant rentals.

14.) If you don't own, you'll live in a cheap neighborhood later.
WRONG. For the any given monthly payment, you can rent a much better house than you can buy. Renters live better, not worse. There are downsides to renting, such as being told to move at the end of your lease, or having your rent raised, but since there are thousands of vacant rentals, you can take your pick and be quite happy renting during the crash. There are similar but worse problems for owners anyway, such as being fired and losing your house, or having your interest rate and property taxes adjust upward. Remember, property taxes are forever.

15.) There's always someone predicting a real estate crash.
TRUE, yet irrelevant. There are very real crashes every decade or so. Even a broken clock is right twice a day.

16.) Local incomes justify the high prices.
WRONG. The mortgage should be more than your 3 years earning. It is much higher today. Most are already in danger/red zone.

17.) You have to live somewhere.
CORRECT. But that doesn't mean you should waste your life savings on a bad investment. You can live in a better house for much less money by renting during the down slide in RE.

18.) It's not a house, it's a home.
WRONG. Wherever one lives in it is home, be it apartment, condo, bungalow , mansion or house. Calling a house a "home" is a manipulation of your emotions for profit.

19.) If you don't buy now, you'll never get another chance.
WRONG. History proves otherwise.
Here's a beautiful quote from a analyst:-
"The real issue isn't whether you will be stuck being a renter all your life, she says. Its whether you'll get so scared about being shut out that you'll buy at the market's peak and be stuck in a property you can't afford or sell."

20.) It would take major economic recession or a major earthquake that wipes out this area in order for the price to fall by over 50%.
WRONG. Even today, if the prices fall by 50%, there will still be very few people who can buy at this levels due to uncertainty in jobs & most importantly high EMIs. Also, look at the rental rates for equivalent houses. Which loss per month is larger? EMI or rent?

contd....
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  • You keep getting me wrong often ...

    Originally Posted by herohiralal
    if you wanted to keep your money in USD then you should have done it. RBI allows around 200K to be taken out of the country per year I think. Govt can only gaurantee its currency kept in its banks (private and public) not some other currency kept it its banks. Indian govt can print indian rupee but not the USD so how can it gaurantee that?

    IMF contribution will not add to the current account deficit. It works something like this. The dollars that RBI has in its reserves (something like 250 odd billion $) are usually invested in safe bonds issued by foreign govt (US fed bonds, UK gilt etc). I think India has around 40-50 billion $ invested in US fed bonds. Now the Indian govt via the RBI will take 10 billion $ out of that reserve and buy 10 billion bonds that are issued by the IMF. So money from one investment will move into another investment. Bonds issued by the IMF are super safe and give decent interest rates so it will be much better than keeping money in US bonds which are yielding very low returns.

    Yes the world may come to an end and all money maybe be worthless but lets keep things in context and have a sence of proportion. India is buying 10 billion $ of IMF bonds. If you think the IMF will fail then you are assuming that US, UK, Japan, Germany, China, Canada and Australia have failed!! In which case we have a total collapse.



    At no point did I intend to state that our Govt should guarantee USD. My point was, goaranteeing a note in my hand on its nominal value (Rs100 will be given if you lose your Rs100) is meaningless if the latter Rs 100 buys only half of the earlier Rs100. So, whichever currency you hold your money in, at the end, all currencies are fiat and as most of the economies are showing that the Govts are technically bankrupt, its only a matter of time that these currencies get devalued in REAL terms.

    Second, we are falling into the trap of conventional times in believing that a Promissory Note from a failed Debtor is as good as money. This has become common practice with countries like the US setting aside sound accounting practices (FASB 157 Mark-to-Market switched to Mark-to-fantasy). We are assuming that the money owed to us by the IMF is still with the IMF. Nope. It will very soon disappear into the black hole called Europe (from where it will be stolen legally by Private Banks) and one of these days it will get monetised away (by devalued currency) or simply reneged upon (like Greece and many others will shortly do) because there is no money to pay it back in the foreseeable future. Its already been stolen, you see? To give readers an example, the 130 Billion bailout of Greece will see not a SINGLE dollar actually reach Greek shores. It will go into escrow and will pay back Greek debt already taken earlier!! SERIOUSLY! Not a single dollar wihh reach the Greeks. And they criticize Indian trickle-down system where only 15% reaches the targeted recipient. In their case its ZERO%!

    As I said, a Mark-to-Fantasy accounting entry of my money supposedly going to be paid back at an indeterminate time by a bankrupt country at a real value possibly far less than the one I put up ... is a Good Debt?

    Well, in that case, can I borrow lots of such money from you and give you a (nicely designed) Promissory Note for repayment as an when capable at a value which may be anything at that point (probably fr less)?

    And I'm not getting carried away when I see my money getting devalued DAILY by my Government, which, as opposed to Guaranteeing my REAL money (value) is instead guaranteeing the REAL decline of value in my hands every day by its inept practices! Why do you think people are rushing to buy REAL assets at ever-spiraling prices? They are not stupid. This is the only way they see their REAL value retained.

    Would you stay calm when your money is being destroyed at 15-20% (or more) per annum? By a Govt which claims to guarantee it?!

    cheers
    CommentQuote
  • Originally Posted by puser
    dear, the link doesnt work. please correct the url


    Thanks. How about now?

    globaleconomicanalysis..in/2012/06/capital-controls-hit-spain-government.html

    Somehow IREF swallows up the word "b.logspot". The site is globaleconomicanalysis.b.logspot.in and b.logspot is swallowed up. Annoying!

    In each case remove the "." in "b.logspot" and you should be fine!

    Otherwise go to MISHs (Mike Shedlock) b.log and check out this article on the left panel.

    cheers
    CommentQuote
  • Originally Posted by wiseman
    At no point did I intend to state that our Govt should guarantee USD. My point was, goaranteeing a note in my hand on its nominal value (Rs100 will be given if you lose your Rs100) is meaningless if the latter Rs 100 buys only half of the earlier Rs100. So, whichever currency you hold your money in, at the end, all currencies are fiat and as most of the economies are showing that the Govts are technically bankrupt, its only a matter of time that these currencies get devalued in REAL terms.

    Second, we are falling into the trap of conventional times in believing that a Promissory Note from a failed Debtor is as good as money. This has become common practice with countries like the US setting aside sound accounting practices (FASB 157 Mark-to-Market switched to Mark-to-fantasy). We are assuming that the money owed to us by the IMF is still with the IMF. Nope. It will very soon disappear into the black hole called Europe (from where it will be stolen legally by Private Banks) and one of these days it will get monetised away (by devalued currency) or simply reneged upon (like Greece and many others will shortly do) because there is no money to pay it back in the foreseeable future. Its already been stolen, you see? To give readers an example, the 130 Billion bailout of Greece will see not a SINGLE dollar actually reach Greek shores. It will go into escrow and will pay back Greek debt already taken earlier!! SERIOUSLY! Not a single dollar wihh reach the Greeks. And they criticize Indian trickle-down system where only 15% reaches the targeted recipient. In their case its ZERO%!

    As I said, a Mark-to-Fantasy accounting entry of my money supposedly going to be paid back at an indeterminate time by a bankrupt country at a real value possibly far less than the one I put up ... is a Good Debt?

    Well, in that case, can I borrow lots of such money from you and give you a (nicely designed) Promissory Note for repayment as an when capable at a value which may be anything at that point (probably fr less)?

    And I'm not getting carried away when I see my money getting devalued DAILY by my Government, which, as opposed to Guaranteeing my REAL money (value) is instead guaranteeing the REAL decline of value in my hands every day by its inept practices! Why do you think people are rushing to buy REAL assets at ever-spiraling prices? They are not stupid. This is the only way they see their REAL value retained.

    Would you stay calm when your money is being destroyed at 15-20% (or more) per annum? By a Govt which claims to guarantee it?!

    cheers


    If you think the money kept in bank is lossing its value then you should invest it somewhere else and not keep it in a bank (I dont keep a lot of money in banks . I have already suggested that keeping money in FD is a lossing proposition and over the last 3 yrs investing in RE has been more profitable. What you and I need to do with out excess cash over the next 3-5-10 years is the next question. But that dosent make the investment by India in IMF bonds any risker than buying US govt bonds.

    The Money owned by IMF to India is in terms of bonds so India could easily sell it to any other country if India ever needed the money.

    The only thing certain with fiat money is that inflation is constant. I understand the -ve aspects with fiat money but there isnt another method which will work in its place (gold standard does not work cause it based on a commodity and again if a person invents a way to harness all the gold present in the ocean where would that leave us? just like how the central banks have found out a way to sav govts by printing new money)
    CommentQuote
  • Originally Posted by compuwalah
    :-D sky is falling scenario. You can find many such examples of "sky falling" in this forum.




    Yes if one stays put on ones beliefs long enough then they will evenually come true. But does that mean one should just ignore the data and put his/her beliefs over hard data? India will suffer from the current bubble that is getting built up in the RE market but is it happening today with high interest rates, decent growth, best demographic profile in the world, etc.

    There are many options available with people, govt and companies to prevent a massive fall in RE prices and we havent even used those options so its really really difficult to see a massive fall in prices without a complete stop in any policy changes from govt.

    Remember the interest rates are still very high, govt still owns a lot of companies and so productivity gains by privaitsing those companies and reducing the debt by selling them is still open then we have FDI in retail, professional service and opening up of the education sector and removing APMC, privatising railways, privatising water and power distribution, etc

    I am not even talking about social issues which the govt could resolve like reservation or law and order.

    So it wont be a one way downhill for RE prices from here unless the govt just stops responding.


    Yes if one stays put on ones beliefs long enough then they will evenually come true. But does that mean one should just ignore the data and put his/her beliefs over hard data? India will suffer from the current bubble that is getting built up in the RE market but is it happening today with high interest rates, decent growth, best demographic profile in the world, etc.

    There are many options available with people, govt and companies to prevent a massive fall in RE prices and we havent even used those options so its really really difficult to see a massive fall in prices without a complete stop in any policy changes from govt.

    Remember the interest rates are still very high, govt still owns a lot of companies and so productivity gains by privaitsing those companies and reducing the debt by selling them is still open then we have FDI in retail, professional service and opening up of the education sector and removing APMC, privatising railways, privatising water and power distribution, etc

    I am not even talking about social issues which the govt could resolve like reservation or law and order.

    So it wont be a one way downhill for RE prices from here unless the govt just stops responding.


    Yes if one stays put on ones beliefs long enough then they will evenually come true. But does that mean one should just ignore the data and put his/her beliefs over hard data? India will suffer from the current bubble that is getting built up in the RE market but is it happening today with high interest rates, decent growth, best demographic profile in the world, etc.

    There are many options available with people, govt and companies to prevent a massive fall in RE prices and we havent even used those options so its really really difficult to see a massive fall in prices without a complete stop in any policy changes from govt.

    Remember the interest rates are still very high, govt still owns a lot of companies and so productivity gains by privaitsing those companies and reducing the debt by selling them is still open then we have FDI in retail, professional service and opening up of the education sector and removing APMC, privatising railways, privatising water and power distribution, etc

    I am not even talking about social issues which the govt could resolve like reservation or law and order.

    So it wont be a one way downhill for RE prices from here unless the govt just stops responding.
    CommentQuote
  • About Gold Standard and Real Estate falling

    Originally Posted by herohiralal
    If you think the money kept in bank is lossing its value then you should invest it somewhere else and not keep it in a bank (I dont keep a lot of money in banks . I have already suggested that keeping money in FD is a lossing proposition and over the last 3 yrs investing in RE has been more profitable. What you and I need to do with out excess cash over the next 3-5-10 years is the next question. But that dosent make the investment by India in IMF bonds any risker than buying US govt bonds.

    The Money owned by IMF to India is in terms of bonds so India could easily sell it to any other country if India ever needed the money.

    The only thing certain with fiat money is that inflation is constant. I understand the -ve aspects with fiat money but there isnt another method which will work in its place (gold standard does not work cause it based on a commodity and again if a person invents a way to harness all the gold present in the ocean where would that leave us? just like how the central banks have found out a way to sav govts by printing new money)



    The assumption of the anti-Gold Standard crowd is based on a rigid - this much gold against this many notes - ratio which will neverchange over time.

    They go further stating that in such a case, economies will cease to grow, this currency straightjacket will hobble economic growth, etc, etc.

    If only we study the monetary history of the US, we note that, during the 19th Century, over a 100-year period which saw such monumental discoveries, inventions and huge growth, the USD was rigidly pegged to around $20 per ounce. This did not hamper any growth! All that the gold standard is doing is, telling Govt to spend according to its income and surplus. When you break this equilibrium then the whole system starts becoming unstable and starts sliding down a slippery slope.

    Backing a countries currency against any real asset - and Gold is perhaps the most long-lasting, non-degrading, debt-free asset there is out there - establishes a bottomline on its value below which it will not go. This is real strength especially under these kind of situation that we are seeing today.

    Compare this to the continuoud degradation of your currency, which is now spiralling out of control.

    A currency which is backed by real assets PREVENTS Govt from recklessly spending what it does not have and spiralling its country out of control and into penury. Historically there is NO EXCEPTION to this.

    If gold is such a barbaric relic (this is put out by modern economists who are only pandering to their political masters) then why are almost all major Govts suddenly showing interest in buying tons of that stuff and why are Central Banks stocking up on them in large quantities?

    Because, everyone knows (especially Central Bankers) that ultimately, when they lose complete control of their economies and currencies, its Gold that will backstop them.

    There is an interesting reason why Warren Buffet is so much against Gold as an investment. Do you know why? Because, in the period that he really arrived as an investor, he never really had a chance to buy and hold gold - in he US you could not buy gold from the time it got confiscated by Govt in 1933. So, for a man who speaks so eloquently against gold, he never bought or held it in his heydays. And to think that, for most of the 1940s, 50s, 60s, 70s gold would have made a great hedge against stock market declines if only it could have been bought and used as a hedge.

    If this Depression goes down to where it is expected to, ou may not only expect a re-design of our golbal financial system, you might also see a return to a quasi-gold standard as part of this re-structuring to bring back sanity to the system.

    RE
    ---
    As regards RE, there is this abundant faith that the "Govt" will do something to backstop decline in RE prices beyond a price.

    We must remember that its Govt meddling everywhere (sometimes they do good but it only encourages them to overdo it everywhere where it becomes poisonous), that has got the world to where it is today. So, how can Govt, which brought us to this state have a positive impact on backstopping RE price declines to realistic levels?

    Of course, like you see in the West, initially everyone is happy that artificial Govt propping up of RE is great for their own RE holding. Till the whole thing goes out of control and the fall becomes worse than it it was left alone to find its market level.

    So, let us see how a bankrupt Govt which is relying on risky banks will find ways to artificially keep Re prices up and for how long. This is going to be interesting.

    cheers
    CommentQuote
  • My response to the doomsday scenario has always been to buy a good piece of agricultural land, build a house on it and use the rest for farming - eat what you grow. If 2012 will bring an end to unfettered capitalism, then maybe we will go back to where we started. :)
    CommentQuote
  • Originally Posted by wiseman
    The assumption of the anti-Gold Standard crowd is based on a rigid - this much gold against this many notes - ratio which will neverchange over time.

    They go further stating that in such a case, economies will cease to grow, this currency straightjacket will hobble economic growth, etc, etc.

    If only we study the monetary history of the US, we note that, during the 19th Century, over a 100-year period which saw such monumental discoveries, inventions and huge growth, the USD was rigidly pegged to around $20 per ounce. This did not hamper any growth! All that the gold standard is doing is, telling Govt to spend according to its income and surplus. When you break this equilibrium then the whole system starts becoming unstable and starts sliding down a slippery slope.

    Backing a countries currency against any real asset - and Gold is perhaps the most long-lasting, non-degrading, debt-free asset there is out there - establishes a bottomline on its value below which it will not go. This is real strength especially under these kind of situation that we are seeing today.

    Compare this to the continuoud degradation of your currency, which is now spiralling out of control.

    A currency which is backed by real assets PREVENTS Govt from recklessly spending what it does not have and spiralling its country out of control and into penury. Historically there is NO EXCEPTION to this.

    If gold is such a barbaric relic (this is put out by modern economists who are only pandering to their political masters) then why are almost all major Govts suddenly showing interest in buying tons of that stuff and why are Central Banks stocking up on them in large quantities?

    Because, everyone knows (especially Central Bankers) that ultimately, when they lose complete control of their economies and currencies, its Gold that will backstop them.

    There is an interesting reason why Warren Buffet is so much against Gold as an investment. Do you know why? Because, in the period that he really arrived as an investor, he never really had a chance to buy and hold gold - in he US you could not buy gold from the time it got confiscated by Govt in 1933. So, for a man who speaks so eloquently against gold, he never bought or held it in his heydays. And to think that, for most of the 1940s, 50s, 60s, 70s gold would have made a great hedge against stock market declines if only it could have been bought and used as a hedge.

    If this Depression goes down to where it is expected to, ou may not only expect a re-design of our golbal financial system, you might also see a return to a quasi-gold standard as part of this re-structuring to bring back sanity to the system.

    RE
    ---
    As regards RE, there is this abundant faith that the "Govt" will do something to backstop decline in RE prices beyond a price.

    We must remember that its Govt meddling everywhere (sometimes they do good but it only encourages them to overdo it everywhere where it becomes poisonous), that has got the world to where it is today. So, how can Govt, which brought us to this state have a positive impact on backstopping RE price declines to realistic levels?

    Of course, like you see in the West, initially everyone is happy that artificial Govt propping up of RE is great for their own RE holding. Till the whole thing goes out of control and the fall becomes worse than it it was left alone to find its market level.

    So, let us see how a bankrupt Govt which is relying on risky banks will find ways to artificially keep Re prices up and for how long. This is going to be interesting.

    cheers

    The period that you mention where the gold standard worked so well was probably the only period in human history where there was stability amongst the major powers of the world and free trade was rampant hence we say all the imp innovations. Then in the 20 th centry we had 2 world wars then cold war and then war on terror. All these are global wars. Having a gold standard in a world where change is constant is impossible. The pace of innovation will break the gold standard in no time even before war makes its useless.

    If govt were to use gold standard and limit their spending then how would one fund a war which takes up so much resources (capital and human). Gold standard or silver or iron or mud or air standard would work in an ideal world. Having a fiat currency with exchange rates is the best possible outcome.

    Central banks buying gold is the worst policy ever!! They are forced to do that cause bond yields are at ultra low level. Investors are paying Germany and Swiss money to buy their bonds (-ve yields) and so in such an env gold is the only major asset they can buy which doesn't affect inflation, strengthen currency, has no major industrial use like silver and is liquid. They are better off letting their currencies rise so that the pain it inflicts on their exporters will force them to be more innovative and move up the value chain.

    I only read about communist, socialist and outright dictatorships buying gold and not innovative and flexible economies like US or UK.

    If the money spent in buying gold by the central banks had been spent in innovation and research on how to dig dipper and mine more gold it would have resulted in atleast 2 times more gold than buying. Central banks spent around 70 billion buying gold last year so do the math.

    On your point on RE - yes we will have a crash and a very severe one but the time is not now. We still have a few more yrs of go
    CommentQuote
  • The only "real" asset is human effort. US maintains its premier position because there are 300 million of them with 45000$ per annum productivity.

    gold - RE - paper - bonds - shares - all are not as as real as work and productivity.

    The day Indians become as productive as Americans, our currency will be backed by our work and will be strongest.

    The Yen, Sterling, Swiss Kroner, Deutsch mark, Franks, Yuan - each is backed by its people. Not by gold but by productivity.

    When there is recession and productivity falls - currency has to fall.

    Right now, there is massive recession globally and every currency is backed by much less productivity = all currencies are weak.

    Until productivity increases again, currencies are all going to be weak. You cannot hide from it in any asset class - except to have skills and earn well.

    Main problem in developed world is that productivity levels have remained static at 45000 levels for over a decade. Every time one person has become more productive, two more have fallen in productivity or others in other countries are doing the same work for less. So productivity per capita in developed countries remains same while production is shifting around in the globe.

    This is inevitable and will remain so until the playing field is even.

    India and China will continue to benefit from this multi decade phenomenon and so will shrug off the depression and get back to growth path after a year or two to adjust to new realities
    CommentQuote
  • Originally Posted by SGanguly
    My response to the doomsday scenario has always been to buy a good piece of agricultural land, build a house on it and use the rest for farming - eat what you grow. If 2012 will bring an end to unfettered capitalism, then maybe we will go back to where we started. :)



    Eat what you grow & don't spray pesticides on it. - Satyamev Jayate ;)
    CommentQuote
  • Let us turn the argument upside down!

    Originally Posted by herohiralal
    The period that you mention where the gold standard worked so well was probably the only period in human history where there was stability amongst the major powers of the world and free trade was rampant hence we say all the imp innovations. Then in the 20 th centry we had 2 world wars then cold war and then war on terror. All these are global wars. Having a gold standard in a world where change is constant is impossible. The pace of innovation will break the gold standard in no time even before war makes its useless.

    If govt were to use gold standard and limit their spending then how would one fund a war which takes up so much resources (capital and human). Gold standard or silver or iron or mud or air standard would work in an ideal world. Having a fiat currency with exchange rates is the best possible outcome.

    Central banks buying gold is the worst policy ever!! They are forced to do that cause bond yields are at ultra low level. Investors are paying Germany and Swiss money to buy their bonds (-ve yields) and so in such an env gold is the only major asset they can buy which doesn't affect inflation, strengthen currency, has no major industrial use like silver and is liquid. They are better off letting their currencies rise so that the pain it inflicts on their exporters will force them to be more innovative and move up the value chain.

    I only read about communist, socialist and outright dictatorships buying gold and not innovative and flexible economies like US or UK.

    If the money spent in buying gold by the central banks had been spent in innovation and research on how to dig dipper and mine more gold it would have resulted in atleast 2 times more gold than buying. Central banks spent around 70 billion buying gold last year so do the math.

    On your point on RE - yes we will have a crash and a very severe one but the time is not now. We still have a few more yrs of go



    You state that the 19th Century saw relative stability and the lack of war led to great innovations. And the absence of the ability to print without limit is the reason wars could not be subsidised.

    Precisely why Gold is so important to a stable world and why we must have gold as a backing for currency.

    If the 20th Century saw so many wars and devastation (actually the 19th Century saw many wars as well and wartime is also the time for unusual innovation) because of deficits and wild money printing and hyperinflation (Germany in 1923 and many 10s of hyperinflationary situations in Argentina ... till recently Zimbabwe) partly also due to forced war reparations by Germany to France, let us understand that it is this monetary instability that actually leads to further wars - by creating depressions and hyperinflations (think back to how Hitler could sieze power without an unstable and angry German population).

    The 19th Cen also had wars (from Napoleonic Wars of the early part of the Century to Franco-Prussian War and the various wars between European nation-states) but nothing in the scale of the 2 World Wars which could be traced to the ability to print wildly and subsidise wars, which, in a gold standard would be so much more difficult.

    Even today's great instability is directly attributable to spending beyond our means, which would not happen with real asset-based currencies. Which is why there is growing conclusion that, at the end of this process of destruction of the current monetary system we would go back to some form of real asset-backed (gold?) monetary system.

    cheers
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  • we already have a policy

    Originally Posted by herohiralal
    A Bank run is not taking place in UK! Pls verify facts before spreading rumors. Its a IT glitch which is causing problems at RBS and Natwest. The UK govt has a major stake in both banks. UK is considered a safe places for investors to put their money - look at the gilt yields and the prices of real estate in London. The same is true with Germany. People from Italy, Spain, Greece and Portugal are perfroming a bank jog and not a run. A run dosent last for months. But yes Spain, Greece, Italy and Portugal are seeing people withdraw money and put it in safer German and French banks.

    When there was a run on a UK bank in 2008 the UK govt had gauranteed all deposits in the UK banks so there is no need to worry. A bank run in India (if it at all happens) will result in the same policy.



    Brother our Nationalized banks are already having a policy that in single account one's 1lakh cash is guaranteed ,whatever amount you have . So if you are having 50lakhs in bank then you have to have them in 50 different accounts and in different banks(branches), it applies to fixed deposit also if you have 5lakh FD then leave the interest even your 4lakh principle is not secured by RBI and thats the Fact. Do you think whatever is being told to us by our Parents, teachers, Press, Politicians, Friends are all Correct ,man 80% of all are incomplete or wrong information given to them by each other out of their vested interests.

    i feel this one of the oldest thread is regaining its Glory ,where are you realacres? ..... .
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  • Originally Posted by wiseman
    You state that the 19th Century saw relative stability and the lack of war led to great innovations. And the absence of the ability to print without limit is the reason wars could not be subsidised.

    Precisely why Gold is so important to a stable world and why we must have gold as a backing for currency.

    If the 20th Century saw so many wars and devastation (actually the 19th Century saw many wars as well and wartime is also the time for unusual innovation) because of deficits and wild money printing and hyperinflation (Germany in 1923 and many 10s of hyperinflationary situations in Argentina ... till recently Zimbabwe) partly also due to forced war reparations by Germany to France, let us understand that it is this monetary instability that actually leads to further wars - by creating depressions and hyperinflations (think back to how Hitler could sieze power without an unstable and angry German population).

    The 19th Cen also had wars (from Napoleonic Wars of the early part of the Century to Franco-Prussian War and the various wars between European nation-states) but nothing in the scale of the 2 World Wars which could be traced to the ability to print wildly and subsidise wars, which, in a gold standard would be so much more difficult.

    Even today's great instability is directly attributable to spending beyond our means, which would not happen with real asset-based currencies. Which is why there is growing conclusion that, at the end of this process of destruction of the current monetary system we would go back to some form of real asset-backed (gold?) monetary system.

    cheers

    Germany 1923 was due to world war 1 and world war 1 was not due to fiat money. Argentina was due to a similar situation like the gold standard just that the Argentinian currency was pegged to the USD. Zim was due to bad governance so having fiat money or not dosent result in war but once u have war then fiat money does help.

    The recent euro crisis should teach us about not having a fixed correlation between currencies and economies. It was eaiser to have a gold standard in 19th centry as the world GDP was controlled by just 4-5 players. What we call G20 now was just G4 then.

    Today's instability is due to socialist societies in Japan and Europe. Japan has a debt to GDP of 200% and the euro crisis is due to a stubborn political ideology. Japan is not due to fiat money but due to delay in solving problems with Japanese banks.

    Fixing exchange rate between countries - which is what gold standard does - is the most disastrous policy. Fixing exchange rates means fixing the productivity of a whole nation vs another!!
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  • Originally Posted by naganyal
    Brother our Nationalized banks are already having a policy that in single account one's 1lakh cash is guaranteed ,whatever amount you have . So if you are having 50lakhs in bank then you have to have them in 50 different accounts and in different banks(branches), it applies to fixed deposit also if you have 5lakh FD then leave the interest even your 4lakh principle is not secured by RBI and thats the Fact. Do you think whatever is being told to us by our Parents, teachers, Press, Politicians, Friends are all Correct ,man 80% of all are incomplete or wrong information given to them by each other out of their vested interests.

    i feel this one of the oldest thread is regaining its Glory ,where are you realacres? ..... .


    Yes in normal times only a small amount is guaranteed. What I said was that the UK govt gave unlimited guarantees to avoid a bigger run on UK banks once there was a run on northern rock bank. Changing from 1 Lakhs to whatever figure is just a policy change which takes minutes when a bank run starts. For more stay tuned on the euro crisis. A euro wide bank guarantee is what people want to save the bank jog which is seen in Spain, Italy and greece
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  • Originally Posted by Venkytalks
    The only "real" asset is human effort. US maintains its premier position because there are 300 million of them with 45000$ per annum productivity.

    gold - RE - paper - bonds - shares - all are not as as real as work and productivity.

    The day Indians become as productive as Americans, our currency will be backed by our work and will be strongest.

    The Yen, Sterling, Swiss Kroner, Deutsch mark, Franks, Yuan - each is backed by its people. Not by gold but by productivity.

    When there is recession and productivity falls - currency has to fall.

    Right now, there is massive recession globally and every currency is backed by much less productivity = all currencies are weak.

    Until productivity increases again, currencies are all going to be weak. You cannot hide from it in any asset class - except to have skills and earn well.

    Main problem in developed world is that productivity levels have remained static at 45000 levels for over a decade. Every time one person has become more productive, two more have fallen in productivity or others in other countries are doing the same work for less. So productivity per capita in developed countries remains same while production is shifting around in the globe.

    This is inevitable and will remain so until the playing field is even.

    India and China will continue to benefit from this multi decade phenomenon and so will shrug off the depression and get back to growth path after a year or two to adjust to new realities


    The developed world has become too socialist. The social welfare nation is taking down Europe (including UK), Japan and US. Tax rates are 50% + in these countries. Income tax may be 25% but add to that national insurance + council tax + tv license + car tax + VAT etc and you can see how much of the economy is dirven by govt spending.

    US is still much better than Japan and Europe and its seen in its leadership in technology and innovation. A kid 23 yrs old has a chance to build a company valued at 70 billion + even after a flop IPO. Investing in human capital is the best possible investment as all its takes is one brillant mind to invest how to harness gold from sea water or how to make ethanol from waste or increase effiency of solar cells etc.

    India and China will continue to grow for sometime but when the crash does occur it will be spectacular. China for its policitcal system and India because of its corruption and license raj. The only possible way out of a certain fall is to lessen the amount of govt intervention in India and move towards democracy in China - both distant dreams. So stay long on India and China for a few more yrs or even a decade but start preparing for the biggest short position of our lifetimes :)
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  • Drachma

    A euro wide bank guarantee is what people want to save the bank jog which is seen in Spain, Italy and greece


    European banks have Euro 100,000 deposit guarantee. The problem is not guarantee. What happens e.g. when Greece leaves and changes currency to drachma? People will get devalued drachma instead of euros.
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