Banks - GRRRRRRRRRRRRRRRRRRRRRRR

[Giardiasis]

Just one example of a naturally evolving monopoly Standard Oil, grew and and absorbed all competition despite state anti-trust legislation - Rockefeller was able to through shrewd organisation and secret deals between players to consistently beat the system until finally the Sherman Anti-trust legislation forced a breakup of the company and its affiliates.

There was plenty of room for new players in the oil refining and distribution industry but Standard Oil acted aggressively to undercut and then buy out all other players. Their dominant market position allowed them to do this.

Now the typical libertarian response to the Standard Oil case is "yeah sure the thing we said can't happen happened but in fact Standard Oil lowered prices for the consumer so it was all good". That may have been so but it flies in the face of the standard libertarian mantra of "only governments can create monopolies".

The truth is always more complex than a simple "one size fits all" philosophy can account for.

I'm not sure what you would define as a monopoly, but for me it is a company that is able to charge exuberant prices without fear from competition. It isn't simply market share.

Standard Oil is a bad example if you wish to demonstrate that it was a monopoly. For one thing the industry's output increased rapidly after 1870, which is not something you would expect to see if a monopoly operated. In any case by the time Standard Oil was broken up it only had 11% market share, as Associated Oil and Gas, Texaco, Gulf and dozens of others entered the market. As you pointed out, the cost of oil dropped dramatically, and this is what I'd argue is the reason why the company was so dominant.

We associate monopolies as bad for the economy, yet you use a company that brought cheap light to millions as an example of something that needed to be stopped by government :headscratch

 

[Giardiasis]

I stopped at my big local Woolworths the other day. They had one person on check-outs, forcing everyone to self-check their groceries.
Do you see how corporations are trying to make humans completely redundant?
I stayed in the check-out chicks queue anyway because I wanted her to have her job just a little longer.

What do you expect them to do? When labour costs become too high, of course they will move from labour to capital. Woolworth's doesn't exist to bring jobs to people, it exists to bring shareholder return. You are blaming the outcome on the wrong entity: the high cost of labour is because of government and unions.

 

[Giardiasis]

i dont think they should make any profit. once they make a dollar they will want more and more. its a slippery slope.

Your utopian vision is a dangerous way to base policy around. You deny human nature, and substitute a fantasy. Why would anyone in their right mind invest money to see no return? You pretty much deny the benefits of trade.

 

[Giardiasis]

I'm sure they'd still make fantastic profits if they lowered home loan interest rates by 2%, or capped them at 3%.

I can think of two compelling arguments why interest rates shouldn't be artificially lowered, especially that low:

1. Artificially low interest rates cause a massive misallocation of capital that incorrectly tells people that an investment is worth it. Prices are basically signals, and interest rates controlled far below the market rate leads to outcomes such as the GFC.
2. Savers are punished at the expense of borrowers (i.e. property owners). Why is this something desirable, or even moral? Would you be willing to pay $100 today to receive a measly $103 in a years time? People that try and save for their retirement are severely handicapped.

 

[Disco08]

As I've said, other countries - recognising that high interest rates become exponentially more damaging as house prices skyrocket - have managed their economies with very low intesest rates for years.

Property crashes and financial crises come about when borrowers suddenly can't afford repayments where they once could (in very simple terms) so capping home loan rates seems a prudent way of avoiding such events. By all means leave other loan rates for non-essentials as high as you like but it's insane that average families cannot afford basic standards of living purely because of high interest rates/property prices and high costs of essential services. That's fast becoming the reality here though and something needs to happen.

 

[Giardiasis]

As I've said, other countries - recognising that high interest rates become exponentially more damaging as house prices skyrocket - have managed their economies with very low intesest rates for years.

Property crashes and financial crises come about when borrowers suddenly can't afford repayments where they once could (in very simple terms) so capping home loan rates seems a prudent way of avoiding such events. By all means leave other loan rates for non-essentials as high as you like but it's insane that average families cannot afford basic standards of living purely because of high interest rates/property prices and high costs of essential services. That's fast becoming the reality here though and something needs to happen.

House prices would come down under higher interest rates, not the opposite. Which countries do you speak of that have managed low interest rates for years?

Property crashes and financial crises come about when the massive distortions in the allocation of capital are not longer tolerated by creditors. A prudent way of avoiding such events is not to encourage people to go into debt to finance large investments into property. It is simply not sustainable, it is a giant ponzi scheme. History has demonstrated time and time again that your suggestions lead to economic ruin.

 

[Disco08]

Do you see the implication of high interest rates as house prices get higher? History can't have demonstrated anything about my suggestion because whilst house prices remained relatively low interest rates had far less impact.

No one's suggesting that people over borrow to get their property. What needs to happen though is to have housing that's affordable as part of the general basic standard of living. Do you deny the struggles most people seem to be having affording the basics or do you not think it's actually a problem?

 

[Giardiasis]

Do you see the implication of high interest rates as house prices get higher? History can't have demonstrated anything about my suggestion because whilst house prices remained relatively low interest rates had far less impact.

No one's suggesting that people over borrow to get their property. What needs to happen though is to have housing that's affordable as part of the general basic standard of living. Do you deny the struggles most people seem to be having affording the basics or do you not think it's actually a problem?

House prices respond to interest rate changes, not the other way around.

The basic standard of living is not a right, it is something that must be earned. Where do you get this idea from?

What I think is that it is folly to manipulate interest rates in the hope of achieving outcomes deemed good by home owners. You are picking one segment of society to benefit from something, and disregard the effect such policies have. They ALWAYS lead to bad outcomes for ALL.

http://www.learnliberty.org/content/unintended-consequences/?utm_source=facebook&utm_medium=social&utm_content=Where%20do%20you%20see%20unintended%20consequences%20today&utm_campaign=social%20referrals%2013

 

[AngryAnt]

Geez G-man, I see you've been hard at work catching up. I'll let you catch your breath for a while.

 

[Leysy Days]

Leysy's no idea about economics other than to know this time of year is his boom period with the Spring carnival.

But surely capping interest rates at lower than they should will only ensure demand is far more. Thus making house prices than they are anyway.

 

[Disco08]

Demand isn't the only factor driving house prices. The ability of the populace to afford to buy into the market will also effect demand, especially if the median price becomes completely unaffordable for the average family.

House prices respond to interest rate changes, not the other way around.

The basic standard of living is not a right, it is something that must be earned. Where do you get this idea from?

What I think is that it is folly to manipulate interest rates in the hope of achieving outcomes deemed good by home owners. You are picking one segment of society to benefit from something, and disregard the effect such policies have. They ALWAYS lead to bad outcomes for ALL.

http://www.learnliberty.org/content/unintended-consequences/?utm_source=facebook&utm_medium=social&utm_content=Where%20do%20you%20see%20unintended%20consequences%20today&utm_campaign=social%20referrals%2013

My point isn't that interest rates reflect house prices - it's that as house prices get up into the range they are now high interest rates become far more crippling. The chance of a 1% rise resulting in mass defaults becomes very real and borrowers have no way of predicting rate changes over a 25 year period. At least if rates are capped they can't say they were caught unaware.

To see what I mean, look here. Add that to the skyrocketing price of utilities and basic foods and you've got a situation that needs to be addressed fairly urgently IMO.

As well, it seems to me that affordable housing is in the interests of all Australians as one of the main advantages of living in this country is the accessablility to real estate as opposed to smaller, longer established nations.

The basic standard of living is not a right, it is something that must be earned. Where do you get this idea from?

Where did I say people shouldn't have to pay for it? The problem as I see it is when the average working family can't afford the average family home or the basic standard of living.

 

[Baloo]

If people are worried about fluctuating interest rates they can always take out a fixed rate loan for up to 10years. That will give them the stability they are looking for at a cost.

But if they are looking for the cheapest rates and fixed then they're asking for thei possible.

I've never totally bought into the argument of spiraling house prices. Sure they are more expensive now but they are loaded with rumpus rooms, ensuites, media rooms, European appliances etc etc etc. I don't see many of the 3 bedroom, 1 bathroom houses that my parents bought as their family house floating around the market.

People have become greedy, want the latest and the best, but then moan because its too expensive. I'm not sure they deserve too much sympathy if they get caught out by raising interest rates because they've tried to buy their dream house before they could really afford it.

 

[Disco08]

I don't agree with all that. There's plenty of very average houses on the market in the area I live in that no first home buyer could ever afford on the average wage at current interest rates and cost of living expenses without getting into a severe debt spiral.

 

[pahoffm]

What do you expect them to do? When labour costs become too high, of course they will move from labour to capital. Woolworth's doesn't exist to bring jobs to people, it exists to bring shareholder return. You are blaming the outcome on the wrong entity: the high cost of labour is because of government and unions.

Have the labour costs of "check-out chicks" altered dramatically over the last few years.
They have actually been eroded over the years as casual employment increases.
Woolworths are actually moving to reduce their costs.

I don't blame Woolworths, I don't blame the Trade Unions.
I blame the deregulation that allows any powerful entity to oppress another for the purpose of gaining super-profits.

 

[Baloo]

I don't agree with all that. There's plenty of very average houses on the market in the area I live in that no first home buyer could ever afford on the average wage at current interest rates and cost of living expenses without getting into a severe debt spiral.

You're in a country town though right ? I would assume things are a bit different there with a limited choice of houses and employment.

In the city, where the bulk of the population lives and works, I stand by my argument.

 

[Disco08]

Well no, in my 1 hour radius I have a number of smaller towns, Canberra and a few coastal centres. If I were to put myself in the shoes of a first home buyer on an average wage I'd struggle to find anything I could afford outside a block of land and a shed/caravan.

 

[Eric]

Well no, in my 1 hour radius I have a number of smaller towns, Canberra and a few coastal centres. If I were to put myself in the shoes of a first home buyer on an average wage I'd struggle to find anything I could afford outside a block of land and a shed/caravan.

Ruibbish. Minimum full time wage in this country is approx $32,000. Assuming you and your partner both work at minimum wage that is $64k per year before tax. Based on this you are able to borrow $340k on a standard home loan according to the CBA calculator which would give monthly repayments of $2,236. Assuming tax at 15% (in reality the tax paid would be a lot less than this flat rate) and no government benefits etc take home monthly pay would be around $4,467.

Now using your example a search of real estate in Braidwood NSW (general area you were talking about) you can buy a three bedroom home for $305k.

This is on the bare minimum wage allowable in Australia.

 

[MB78]

Ruibbish. Minimum full time wage in this country is approx $32,000. Assuming you and your partner both work at minimum wage that is $64k per year before tax. Based on this you are able to borrow $340k on a standard home loan according to the CBA calculator which would give monthly repayments of $2,236. Assuming tax at 15% (in reality the tax paid would be a lot less than this flat rate) and no government benefits etc take home monthly pay would be around $4,467.

Now using your example a search of real estate in Braidwood NSW (general area you were talking about) you can buy a three bedroom home for $305k.

This is on the bare minimum wage allowable in Australia.

As Baloo stated too many when just starting out want it all. They want to start where their parents have finished. So it needs to be four bedrooms, office, double garage etc.

I bought a very basic three bed room home and upgraded after I saved and saved for a fair few years.

 

[Big Cat Lover]

Ruibbish. Minimum full time wage in this country is approx $32,000. Assuming you and your partner both work at minimum wage that is $64k per year before tax. Based on this you are able to borrow $340k on a standard home loan according to the CBA calculator which would give monthly repayments of $2,236. Assuming tax at 15% (in reality the tax paid would be a lot less than this flat rate) and no government benefits etc take home monthly pay would be around $4,467.

Now using your example a search of real estate in Braidwood NSW (general area you were talking about) you can buy a three bedroom home for $305k.

This is on the bare minimum wage allowable in Australia.

Take home monthly is more than you suggest, around $4800. (tax on $2666 per month is only $256). Using almost half your net wage to pay a mortgage is not something I'd be recommending. I hope interest rates don't rise for this pair's sake.

However is both are on a wage of around $50K they would be taking home around $6900 which would make it more affordable. The issues then come when they want to have kids, go on holidays, buy a car, etc etc etc.

Agree with Baloo that people are less inclined to wait until they can afford something before they acquire it. Credit is way too easy.

 

[Giardiasis]

Have the labour costs of "check-out chicks" altered dramatically over the last few years.
They have actually been eroded over the years as casual employment increases.
Woolworths are actually moving to reduce their costs.

I don't blame Woolworths, I don't blame the Trade Unions.
I blame the deregulation that allows any powerful entity to oppress another for the purpose of gaining super-profits.

Of course labour costs have increased; turning to casual employment was a way to mitigate those increased costs. Now the technology is available, it has become cheaper to switch from labour to capital in the form of self-service check-outs for the big supermarkets.
Gee whiz you have more and more regulation that increases the costs of labour, and you diagnose your observation to deregulation. It is the very fact that labour costs are high that the small players can’t get in the game, they can’t compete with the big supermarkets who can turn to capital. How you attribute this to oppression on the part of Woolworths is strange to say the least?