Why was it harder to get a home loan in the 1980s?
Back in the “olden days” there was still a very good understanding of the economic significance of private bank credit creation. Not just in Australia but right around the globe. The ‘old fashioned’ private bank credit creation regulations reflected the understanding that how banks exercised their extraordinary privilege …extended to them by government….required very close and careful regulation.
Rather than leave the banks free to create bank credit for whatever purpose took their fancy and the fancies of their borrowers, regulations deliberately sought to encourage and discourage credit creation depending on the purpose.
In Australia a combination of regulation and control of interest rates for specific purposes managed the quantity of bank credit creation available for residential housing. Yet despite this ‘rationing’ of bank credit most Australians could afford to buy and pay off a house with a single income! Considering the high price of housing in the modern era of “bank credit” freedom the old regulation of credit clearly had a lot going for it.
In Japan the banks were given credit creation quotas to ensure that some purposes….creating factories, industries, businesses that employed people etc had greater access to private bank credit creation while others like residential housing received less. Japanese home sizes reflected those policies. When you are largely limited by your savings as to how much you spend on housing you tend to settle for less house. Japan’s policies certainly reflected the desperate need to direct resources to rebuilding an industrial base and the lack of natural resources to dig up and export for a buck but the point remains relevant.
Bank credit creation is a powerful tool for economic development as demonstrated by smart economies around the world……or you can be stupid and blow massive asset bubbles in residential housing like Australia has done.
The combination of deregulation…… abandoning the bank credit creation regulation approach…. and changes to the CGT policy by PM Howard and Treasurer Costello effectively simultaneously boosted the demand for and the supply of credit for residential housing.
The house price speculators were handed a pile of bank credit betting chips and the rest is history.
Accompanying credit creation deregulation was the rise of the philosophy that the economy should be now driven by private bank credit creation … i.e. monetary policy…. rather than fiscal policy. The target interest rate was dropped by the RBA and the private banks were encouraged to scour the globe for the cheapest credit available to help goose local household demand for credit with lower mortgage rates than domestic saving habits could deliver.
Exploding levels of household debt and asset price bubbles were always a risk though it took the cynicism of Howard and Costello to really put the process on steroids.
In such a debt-ogenic environment is it really any surprise that all manner of sharp practices and dodgy dealings emerged from the “credit creation process” over the last 20 years.
It is those sharp practices that the Royal Commission is now investigating but to make a difference the Royal Commission cannot ignore the debt-ogenic environment that has been created.
Otherwise it would be like investigating dysentery and the plague while ignoring that the sewerage system was ripped up over the preceding decades by a bunch of civil engineering vandals.
After all when it comes to private banks we are talking about a franchise to effectively create public money …with a bailout by the public on offer if you get too greedy.
Is it really any surprise that the immigration (importation) of fresh supplies of debt serfs and human bodies needing housing would explode? The Big Australia population ponzi program is purely about feeding a debt-ogenic economic model with fresh flesh / private bank credit consumers.
It has nothing to do with the post World War 2 pattern of successful immigration. It is unfortunately that a shrinking number of #fakelefties are helping big business by calling anyone who criticizes this crooked economic model ‘xenophobe’ or ‘racist’.
This is all about the role of private banks in the public monetary system and how they were let off “the leash” in the 1980s and allowed to run wild from the last 1990s.
And don’t be conned by the private bank apologists.
The banks have spent a fortune on minions in politics, the media, academia and advertising spends to make sure their preferred policies were adopted and maintained.
Because Peter Fraser