Posted by Rick, the Probate Guy on August 21, 2009 at 09:19:43:
LEt me know if you come into town. I’ll call a few others (Kristine, et. al.).
My gardeners will probably want to keep you away from my lawn.
Do banks create inflated real estate prices? - Posted by John Noble
Posted by John Noble on August 19, 2009 at 21:49:18:
Back in 1973 you could buy a house cash in Miami , Fl for 12 or 13k , in those days according to old folks people(regular people not investors) , these prices were mls prices ,not a foreclosure or short sale, My point is , what if there were no banks willing to finance properties ?
Theoretically Speaking Do banks by allowing people to borrow money are creating are an artificial market that looks real to us?
Lets be honest by the end of 30 years people pay for 3 houses and own one…
If everyone had to pay cash for their properties like 36 years ago it would be a different story Don’t you think?
I know its hard to predict future appreciation …
Re: Do banks create inflated real estate prices? - Posted by lukeNC
Posted by lukeNC on August 24, 2009 at 20:59:28:
see inflation, fiat currency via the federal reserve. Fractional-reserve banking, etc.
It’s a house of cards destined to collapse, we are witnessing the collapse today.
Re: Do banks create inflated real estate prices? - Posted by RR
Posted by RR on August 21, 2009 at 24:46:02:
It has been called “the most astounding piece of sleight of hand ever invented.” The creation of money has been privatized, usurped from Congress by a private banking cartel. Most people think money is issued by fiat by the government, but that is not the case. Except for coins, which compose only about one one-thousandth of the total U.S. money supply, all of our money is now created by banks.
Federal Reserve Notes (dollar bills) are issued by the Federal Reserve, a private banking corporation, and lent to the government.1 Moreover, Federal Reserve Notes and coins together compose less than 3 percent of the money supply. The other 97 percent is created by commercial banks as loans.
In seventeenth century Europe, trade was conducted primarily in gold and silver coins. Coins were durable and had value in themselves, but they were hard to transport in bulk and could be stolen if not kept under lock and key. Many people therefore deposited their coins with the goldsmiths, who had the strongest safes in town. The goldsmiths issued convenient paper receipts that could be traded in place of the bulkier coins they represented. These receipts were also used when people who needed coins came to the goldsmiths for loans.
The mischief began when the goldsmiths noticed that only about 10 to 20 percent of their receipts came back to be redeemed in gold at any one time. They could safely “lend” the gold in their strongboxes at interest several times over, as long as they kept 10 to 20 percent of the value of their outstanding loans in gold to meet the demand. They thus created “paper money” (receipts for loans of gold) worth several times the gold they actually held. They typically issued notes and made loans in amounts that were four to five times their actual supply of gold. At an interest rate of 20 percent, the same gold lent five times over produced a 100 percent return every year, on gold the goldsmiths did not actually own and could not legally lend at all. If they were careful not to overextend this “credit,” the goldsmiths could thus become quite wealthy without producing anything of value themselves. Since only the principal was lent into the money supply, more money was eventually owed back in principal and interest than the townspeople as a whole possessed. They had to continually take out loans of new paper money to cover the shortfall, causing the wealth of the town and eventually of the country to be siphoned into the vaults of the goldsmiths-turned-bankers, while the people fell progressively into their debt.8
Following this model, in nineteenth century America, private banks issued their own banknotes in sums up to ten times their actual reserves in gold. This was called “fractional reserve” banking, meaning that only a fraction of the total deposits managed by a bank were kept in “reserve” to meet the demands of depositors. But periodic runs on the banks when the customers all got suspicious and demanded their gold at the same time caused banks to go bankrupt and made the system unstable. In 1913, the private banknote system was therefore consolidated into a national banknote system under the Federal Reserve (or “Fed”), a privately-owned corporation given the right to issue Federal Reserve Notes and lend them to the U.S. government. These notes, which were issued by the Fed basically for the cost of printing them, came to form the basis of the national money supply.
Twenty years later, the country faced massive depression. The money supply shrank, as banks closed their doors and gold fled to Europe. Dollars at that time had to be 40 percent backed by gold, so for every dollar’s worth of gold that left the country, 2.5 dollars in credit money also disappeared. To prevent this alarming deflationary spiral from collapsing the money supply completely, in 1933 President Franklin Roosevelt took the dollar off the gold standard. Today the Federal Reserve still operates on the “fractional reserve” system, but its “reserves” consist of nothing but government bonds (I.O.U.s or debts). The government issues bonds, the Federal Reserve issues Federal Reserve Notes, and they basically swap stacks, leaving the government in debt to a private banking corporation for money the government could have issued itself, debt-free.
M3, the broadest measure of the U.S. money supply, shot up from $3.7 trillion in February 1988 to $10.3 trillion 14 years later, when the Fed quit reporting it. Why the Fed quit reporting it in March 2006 is suggested by John Williams in a website called “Shadow Government Statistics” (shadowstats.com), which shows that by the spring of 2007, M3 was growing at the astounding rate of 11.8 percent per year. Best not to publicize such figures too widely! The question posed here, however, is this: where did all this new money come from? The government did not step up its output of coins, and no gold was added to the national money supply, since the government went off the gold standard in 1933. This new money could only have been created privately as “bank credit” advanced as loans.
The problem with inflating the money supply in this way, of course, is that it inflates prices. More money competing for the same goods drives prices up. The dollar buys less, robbing people of the value of their money. This rampant inflation is usually blamed on the government, which is accused of running the dollar printing presses in order to spend and spend without resorting to the politically unpopular expedient of raising taxes. But as noted earlier, the only money the U.S. government actually issues are coins. In countries in which the central bank has been nationalized, paper money may be issued by the government along with coins, but paper money still composes only a very small percentage of the money supply. In England, where the Bank of England was nationalized after World War II, private banks continue to create 97 percent of the money supply as loans.9
Price inflation is only one problem with this system of private money creation. Another is that banks create only the principal but not the interest necessary to pay back their loans. Since virtually the entire money supply is created by banks themselves, new money must continually be borrowed into existence just to pay the interest owed to the bankers. A dollar lent at 5 percent interest becomes 2 dollars in 14 years. That means the money supply has to double every 14 years just to cover the interest owed on the money existing at the beginning of this 14 year cycle. The Federal Reserve’s own figures confirm that M3 has doubled or more every 14 years since 1959, when the Fed began reporting it. 10 That means that every 14 years, banks siphon off as much money in interest as there was in the entire economy 14 years earlier. This tribute is paid for lending something the banks never actually had to lend, making it perhaps the greatest scam ever perpetrated, since it now affects the entire global economy. The privatization of money is the underlying cause of poverty, economic slavery, underfunded government, and an oligarchical ruling class that thwarts every attempt to shake it loose from the reins of power.
This problem can only be set right by reversing the process that created it. Congress needs to take back the Constitutional power to issue the nation’s money. “Fractional reserve” banking needs to be eliminated, limiting banks to lending only pre-existing funds. If the power to create money were returned to the government, the federal debt could be paid off, taxes could be slashed, and needed government programs could be expanded. Contrary to popular belief, paying off the federal debt with new U.S. Notes would not be dangerously inflationary, because government securities are already included in the widest measure of the money supply. The dollars would just replace the bonds, leaving the total unchanged. If the U.S. federal debt had been paid off in fiscal year 2006, the savings to the government from no longer having to pay interest would have been $406 billion, enough to eliminate the $390 billion budget deficit that year with money to spare. The budget could have been met with taxes, without creating money out of nothing either on a government print press or as accounting entry bank loans. However, some money created on a government printing press could actually be good for the economy. It would be good if it were used for the productive purpose of creating new goods and services, rather than for the non-productive purpose of paying interest on loans. When supply (goods and services) goes up along with demand (money), they remain in balance and prices remain stable. New money could be added without creating price inflation up to the point of full employment. In this way Congress could fund much-needed programs, such as the development of alternative energy sources and the expansion of health coverage, while actually reducing taxes.
Re: Do banks create inflated real estate prices? - Posted by Bill H
Posted by Bill H on August 20, 2009 at 16:28:25:
Not Necessarily. Lots of things factor into the price of everything. Inflation, supply and demand, cost of goods, cost of labor, value of the dollar, all these amongst other things contribute to the cost.
Use to be able to buy a Snicker Candy Bar for $.05, it is now .$.79 to $1.09…shows how this works.
Banks, make loans of other peoples money, to those who do not have the cash on hand. Banks borrow from you, your deposits in the bank, at one rate and lend at another…that makes them profitable and allows them to lend.
More money had been made through compound interest than all the money made in the real estate marekt. BUT, that is a whole another situation.
36 years ago also there was maybe 180 to 200 million people in the USA. Now there are over 360 million…this makes a HUGE differenc.e
Good Luck,
Bill H
Re: Do banks create inflated real estate prices? - Posted by camgere
Posted by camgere on August 20, 2009 at 11:20:31:
Yes, being able to buy on payments does raise the price of houses. It also allows you to buy more house than a cash buyer. So does lower interest rates.
Many people can’t even come up with 3% down for FHA. Yet if they can get in the house they can make the payments. I sold to a 3% down FHA buyer who was allowed to borrow the 3% from a city program. He was still in the house years later.
Even more people can’t come up with 5% or 10% down. 20% down is unthinkable for many people. Everytime you bump the downpayment requirement you lose potential buyers.
How much house do you own if you rent for 30 years?
Payments are brilliant in that they match the monthly income people have to a monthly expense.
Car salesmen call this type of purchaser a “payment buyer” and just love them.
Home ownership promotes good citizenship. Once you have a mortgage and equity you tend to be a responsible person. You can’y punch someone in the nose and just move 1,000 miles away. Same thing for skipping out on the family.
Re: Do banks create inflated real estate prices? - Posted by DJ-nyc
Posted by DJ-nyc on August 25, 2009 at 11:10:52:
Wow! Thanks.
DJ-nyc
funny numbers - Posted by Kristine-CA
Posted by Kristine-CA on August 20, 2009 at 17:14:11:
Well, unless there are 50MM undocumented aliens, there aren’t
anywhere near 360MM in the US. Check out the population ticker on
the home page of:
Don’t know where you were 36 years ago (or what you were smoking)
in but there were more than 200MM people in the US in 1973.
So, yeah, lots of population growth, but not double. 
Kristine
Re: Do banks create inflated real estate prices? - Posted by J
Posted by J on September 06, 2009 at 04:44:48:
If you borrow money to buy a house you are still renting. You just happen to be renting money instead. Even if you pay cash you are still paying an invisible rent on the lost opportunity costs of that cash. Additionally almost all of us pay rent to uncle sam via property taxes as well. We all have to live somewhere. Whether that cost is paid via rent for the home, rent for the money to buy the home, or lost potential rent on your tied up money in the home that money is not necessary thrown away; you were provided a service for it (i.e. a home). Considering the amount of excess rent people were paying because they paid too much during the bubble; whom generally came away better in the past few years renters or “owners”.
Re: funny numbers - Posted by Bill H
Posted by Bill H on August 20, 2009 at 18:22:41:
Add to that list:
Clinch Dancing and watermelon seed spitting contests.
Re: funny numbers - Posted by Bill H
Posted by Bill H on August 20, 2009 at 18:15:47:
Hi Kristine:
What the heck? Population Clocks U.S. 307,227,973, plus the 12 million undocumented we know of is close enough for horseshoes, government work, and hand grenades.
Good to hear from you again.
36 years ago I was in Sunny Southern CA, drinking Jack Daniels, driving uncluttered freeways, living the good life and smoking some really GOOOOD stuff.
Good Luck,
Bill H
PS: Perhaps, to much of each? Of all the things I have lost, I miss my mind the most!
BTW - Posted by Kristine-CA
Posted by Kristine-CA on August 20, 2009 at 21:30:06:
Until I checked recently, I thought the US population was higher too.
Since moving West I decided that approx. 1 in 10 Americans
is…Californian. So, in typical California-centric fashion I always
multiplied the CA population times 10. Well, in actuality, MORE than 1
in 10 Americans is Californian. (37M out of 307M).
As for the good stuff, even with a prescription for the very best, I skip
the smoking entirely and prefer vino. But back in the day (as in mid-
80s days) I was a Wild Turkey girl. Kristine
Re: OT Roads - Posted by Sailor
Posted by Sailor on August 20, 2009 at 18:44:58:
Bill, don’t know what freeways you were driving, but 5 & 91 were packed even then, & (since there was no efficient way to get from Fullerton to Huntington Beach) surface streets were a nightmare. Granted, driving in CA is horrid now–which is shy I only do it every few years–but it has been miserable as long as I can remember it. Back in the 1950’s & 60’s you never knew when the fog would roll in & you’d end up stranded or driving w/the door open so you could see the white line in the road.
I’m on the rural East coast these days, & I still gripe about driving,. Here it is bad roads, tailgaters & crossing game. CA is crowded, but I think it has much better drivers. My county has only one traffic light, but it takes me 45-60 minutes to go 35 miles.
Tye
Re: OT Roads - Posted by Bill H
Posted by Bill H on August 20, 2009 at 22:27:54:
Move south to MS. Yes, they say it is the poorest state in the union but we got some D@mn good people here. Has highest charity giving rate in US. I now live in a very small town of about 7,000. Got about 6 traffic lights in the entire city. Got two Indian Reservation Casinos about 6 miles away, got a Lowe’s, no Home Depot, $5.00 movie theater with 7 screens, and they roll up the streets about 9 PM.
Got 1.3 acres, about 2,000 sqft home, private airstrip in back of house, 73 Canadian Geese that winter over here and stay year round, 4 small fishing ponds, golf course adjacent, (14.95 per 18) everybody knows everybody else, all this is way under $200,000. Beat that LA!
You think I ain’t ENJOYING life.
Good Luck,
Bill H
Re: OT Roads - Posted by Rick, the Probate Guy
Posted by Rick, the Probate Guy on August 20, 2009 at 23:10:46:
Bill, didn’t know you fly. What kinda bird you drive? I just sold my Turbo Arrow III and have to confess that I’m still waiting for the “miss it” part to kick it. Not yet.
As for Sailor’s comment, I just walked in the door from…Fullerton. Go figure. No traffic tonight but then again I live close enough that I can stay off the freeways.
When I go down to Fallbrook, it’s like living with the Waltons (without the Roosevelt-era depression problem). Everybody is friendly, supportive, and if there’s a problem it’ll be your neighbors that save your arse unless you call for a life-flight chopper.
Where I live most of the time back behind the Orange Curtain, your neighbors will call code enforcement before they’d call an ambulance. if they saw your lawn a little long. Feel the love.
Hope all is well and keep on buying those tax liens.
Re: OT-OC - Posted by Sailor
Posted by Sailor on August 21, 2009 at 17:15:26:
Yes, we felt the “love” so much that, even though we’d spent most of our lives in OC, we ran away to sea when Rocket Man retired. Finally landed in NC, where I can see the fish jump while I wash dishes.
Tye
Re: OT Roads - Posted by Bill H
Posted by Bill H on August 20, 2009 at 23:33:40:
Rick:
At my age about all I fly is June Bugs on a string!!
Yep, they catch them down here and put a little string on a leg and fly them around until they give out and then turn them loose.
Dolly Parton sang a song with the line in it. Something about sitting on the front porch is a straight back chair on two legs leaned against the wall watching kid with june bugs on a string. Tells you how country I am.
My wife used to be a pilot but is no longer current in anything. When we moved here we looked and saw the airstrip and said, “This is for us!”
It is really a lot of fun to watch the little guys come and go. Mostly small Piper, Aeronica, Beechcraft, etc., all prop jobs, no jets.
I used to live in one of those Orange Curtain areas. Everybody telling me to cut the grass, trim the hedges, fix the fence, park the car inthe garage…I finally said to H-ll with this and moved out.
I like where I am now, I can walk out the back and pee on the lawn and the neighbors do not say anything. They are all far enough away that it does not bother them.
All is well so far, have to go down the 31st for another check up and doctor says I am now three years out and if all is OK will put me on an annual basis. This 90 day and six month bit is getting a bit old.
The tax sale starts on the 31st in the same city so I’ll make a business trip out of it.
Things in the tax sale business are a bit strange this year. I’ve got more unredeemed than I have had in the past 10 years or so. Ties up lots of capital but if I get the proerties will be a bonanza.
Then again I have been at this long enough to know that there are very few bonanzas in the tax sale business.
Gotta’ go…thinking about coming out S. CA way for a visit, will keep you advised if we decide to do so.
Good Luck,
Bill H
Re: OT Roads/Fullerton $avings - Posted by Sailor
Posted by Sailor on August 21, 2009 at 17:12:14:
Pay for your trip by making an appt for contacts &/or glasses @ So. Cal Optometry College in Fullerton (714-449-7400). I used to teach across the street & have been a patient there for decades, even though I haven’t lived there for nearly 20 years. Your inital exam takes c. 4 hours & everything is double-checked by a professor, so the work is excellent. I’ve tried 3 different pairs of contacts here in NC & it was a waste of $$$, so I still fly back when necessary. Prices are cheap, especially when you ask for the sr. discount, & the $avings usually cover the airfare.
Tye