Monday, 22 September 2014

b.Grotesque Printing of Fiat Money

The last part is here:   Exploration - Fiat Currency

I know this is a much discussed topic and everyone has their own angle. I am now thinking hard about mine.

When a government-of-the-day operates, she has to pay her loyal subjects and servants month after month increasingly. How to pay them? Well, the best way is to print cheap but pretty IOUs like fiat money. In return, how to make it legal? Well, by asking the citizenry that she needs to be paid taxes by way of accepting these fiat money too. This becomes the central theme to the employment of fiat money.

Well too, most governments-of-the-day run a deficit most of the time, unlike the white fuckens. Hence, the white fuckens' currency tends to be quite strong. But, unfortunately, the white fuckens love to gamble. It was too easy as there was no accountability. The white fuckens lost big time in 2009. The white fuckens then had no choice but to start filling the big hole. They do so by printing more fiat money and inflate all prices to try to reduce the impact of their big losses of $360bn. Indeed, the white fuckens have to a certain extent succeeded. But, the hardship imposed on the citizenry was horrendous. That is another bedtime story for another time.

This grotesque printing of fiat money has only one effect: inflation. In inflation, the prices are made very high, but yet the consumption is very low. The wages are stagnant and every citizen will restrict consumption, commonly known as stagflation.

In the usual boom-and-bust cycle, real estate prices will go up during boom and comes down during bust. But, this bizarre printing of fiat money masks this trend. property prices will seem to be only going up. How does one know then that it is indeed a good time to buy? The only sign left is not so much huge drop in price, but the presence of gap-downs, i.e., buyers are not willing to buy at the sellers' price nor the sellers willing to take the buyers' offer. Very often, this is characterized by extremely low transaction volumes.

With the inflated property prices, one should not be surprised that I now may have to turn my back on one of my most fundamental mantras: no loans.

I have no choice but to admit that with the new twist in the tale, one would never be able to save money fast enough to overcome inflation. So buying properties have to be supported initially by bank loans.

We have to go back now and shake hands with the evil powers. It is interesting as to how this game plan will play out.

When borrowing, do be careful in not over-stretching one's purchase power. It is good to buy a property at less than 10% one's true purchase power. Else, one would be over-stretching when hard times hit again.

At 10% true purchase power, the banks are more than willing to lend. Even in the hard time, these cheap-cheap properties may be sold if necessary to recover some purchasing powers.

The last thing I would like to suggest: Never refinance your properties no matter how tempting is the bank offer. Your properties have already crossed the bridge and enjoying the cake. Don't risk them again over bank loans.

Good Luck!

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