Another week, another miserable “hammer time” performance across the Post Codes of the Emerald City.  The “siege of Sydney” by the private banks continues with credit creation remaining on a very tight leash.  When will the banks decide that enough punishment has been dispensed and the lesson has been learnt?   When will they recommence dispensing abundant bank credit to those property punters they deem worthy?

The numbers in the tables below tell the story of Sydney this week.

• “Hammer time” remains in the cellar at 16% of auctions listed this week
• The reported clearance rate was 44% (or 28% of listed auctions)
• The mean sales price sagged back down to $772,768
• Total sales were a measly $171,554,500
• And most “horrifying” of all – the estimate of agents commissions was a fraction under $3.5 million. Down from the $8 – $11.5  million range of the matched weekends for the last 4 years.

Grim stuff.

The kind of stuff that burns the snags at harbourside BBQ’s and induces fresh visible signs of ageing in the most botox ‘protected’ foreheads.

Photo by Brett Sayles on Pexels.com

So what is going on?

Long time readers of the Glass Pyramid have a deep appreciation of how the Australian public monetary system currently works and the farce that is the role of the private banks in that monetary system.

The “executive summary” of that role, for the many high powered executives who linger around the Glass Pyramid between cuticle polishes, is as follows

1. As the RBA recently confirmed.  95% of the money in the Australian monetary system is created by the private banks and not the Reserve Bank of Australia (or Mr Morrison)
2. The money created by the private banks is “bank credit”. In other words banks create money when they create a loan.
3. While they cannot do this type of money creation without limit they have had an enormous amount of freedom in recent years to make loans or extend bank credit (effectively make money) to whoever they choose and for whatever purpose they choose.  This is the special privilege that makes a bank a bank.
4. For the most part the people receiving these ‘loans’ have been using them in Sydney and Melbourne to “punt” on the prices of existing residential assets and those towering towers of off the plan ‘sky box’ apartments.
5. As this bank credit driven asset price gambling drove up house prices, the banks used the now higher prices of housing assets to justify lending even more. More valuable security = larger loan.
6. To add even more fuel to the fire they began approving loan sizes using fantasy low assumptions regarding borrowers expenses so borrowers appeared capable of supporting larger loan sizes with no actual increase in their actual incomes.

So what changed?

In simple terms the only thing that changed in 2018 was that the Banking Royal Commission asked a few pointed questions about the approach the private banks have been taking to the exercise of their extraordinary privilege to effectively create a form of public money.

That was enough to send the banks (and their sleepy / champagne fizz distracted board members) into a panic.    The result of that panic is that the banks are suddenly not quite as keen to create money in the form of bank loans as freely as they have over the last few years.

They were not worried as APRA snored loudly under a tree and while the RBA clearly applauded the bubble they were blowing with a bunch of rate cuts and cheerleading all the way.

Nor did they worry while the Prime Marketing Minister Scott Morrison desperately fought against a Banking Royal Commission for years.

But they did worry as the Banking Royal Commission attracted eyeballs every night across the country.

Bankers turning nasty

At first the bankers were quite chastened and fell over themselves to apologise for spraying credit (new money) so recklessly at the Sydney and Melbourne asset price bubbles and they all lined up and promised to do better.   But that was never going to last for long.   After all, we are talking about the absolutely smartest people in the room who have been told from the day they were knee high to a grasshopper that they would beat Obi Wan Kenobi hands down in the “You are our only hope” stakes.

They tell themselves, over a few fine French vintages, that they were only doing what anyone would do if they were given an extraordinary privatisation of a public power (public money creation) and an effective public guarantee to be bailed out if they stuffed it up.

“Make out like a bandit”

As a result, once the Banker “Sorry Day” receded from memory, they got sulky and then angry and are now being very stingy when it comes to handing out bank credit (new money).   It does not take a rocket scientist to work out what happens to a property bubble when the banks that blew it suddenly decide to cut loan sizes by 20-40%.

The banks don’t care.   They believe they have the Australian public (and the politicians) by the short and curlies.    Unless we let them go back to creating credit the way they want to and with a public guarantee, they will allow the current “credit crunch” to drive the economy into recession.

“That will teach the suckers.   They NEED us”

….is what they are thinking in idle moments or during telephone hook-ups to discuss what the cartel should do next.

We have a choice

The choice for the Australian public and our politicians is clear.

Either we surrender to the banks and give them what they want.  Which is broad freedom to effectively create public money and give it to whoever they decide to – with a public guarantee if they get themselves in trouble

OR

We start the critical process of reforming the role of private banks in our public monetary system and take the measures required to start restricting their privilege of public money creation or preferably remove it completely.

Fixing Oz Banks Pt 3: The best way to create deposits? – The RBA v the private banks

Fixing Oz Banks Pt 6: Making a difference?…a response to Joe

Table 1:      Hammer Time

Table 1 shows the totals for each auction result category in the APM pdf reported by Domain this week.   Hammer time is the percentage of the listed auctions that were sold under hammer or shortly afterwards.

Table 2    – Year on Year comparisons

Table 2 compares this weekend (the 5th weekend after the October long weekend) with the same weekend in the previous 8 years.

It is worth noting that it was this weekend in 2017 where the softness in the market first started to become clear.  The clearance rates started to linger in the 60s and the mean prices started to slip below $1,000,000.    Since then the mean has slipped by $200,000.

Table 3 – Summary

Table 3 is a summary of recent weeks of auction action.    Some 2016 figures are included to remind us all what credit taps turned to full can do!