The Great Currency Debasement

The trajectory of Sydney and Melbourne house prices between 1880 and 2010 show an interesting pattern, which reflects what has happened at the same stages in history all over the world. First of all, between 1880 and 1950, house prices remained relatively flat. It wasn’t until the 1970s that things started to change.

In August 1971, US President Richard Nixon, along with Henry Kissinger, debased all the currency. We went off the Bretton Woods system and went onto the petrodollar. At this stage, Sydney and Melbourne house prices began to break away and leap upwards. It was a crucial year. Values went up for another 20 years. In 1990 they went up from $100,000 to $200,000.

Then we had the recession we had to have. Ten years passed until in 2000 we saw the market go from $200,000 to $300,000. Then it was a correction phase, followed by the GFC, until in around 2011/12, the property market in Sydney caught back up and took off and the rest is history.

So the ABS stats show the market did nothing until the 1950s, then it got a slight bump up and has risen ever since.

Debt-based Ponzi scheme

Looking at the percentage of household debt to GDP, also from ABS charts, there was almost no household debt (only 1% to 2%) from the year 1860 through to the 1930s. Then with the Great Depression and WWII, we had levels of debt. That came back down in the 1950s.

From 1951 to 1971 household debt jumped quite significantly, going from 2% all the way up to 20%.

As mentioned earlier, the dollar that we use today was only really established in 1971. What followed were some high levels of inflation through the 1970s and 1980s, until at the end of the latter decade we ended up in the “recession that we had to have”.

At that point in time, the nation simply printed money and the household debt just shot up and up through to the end of 2011. Ever since the GFC, the numbers just skyrocketed.

It’s worldwide

People talk about expensive house prices as just being an Australian phenomenon, but if you look at the UK, the same things happened at the same time. Prices there have risen exponentially since 1970, but again, they only rose when money started being manipulated.

Up until 1970, house prices across the UK and London specifically were only 20,000 to 30,000 pounds. In the 1980s and 90s it really started to increase. Then in the early 2000s came the dotcom bubble and widespread money printing, before things really started to rise. In the GFC it went back a little bit just like here. But with all the money printing as part of quantitative easing in the wake of the GFC, we started to see property prices rise astronomically.

Surely not in America?

Over in the US, and in particular Los Angeles, from 1900 to1933, nothing much happened in terms of house prices. Around 1948 to 1950, with the industrial revolution, house prices doubled within three years. After that, all the way through until the 1970s, prices were still yet to hit $20,000. Then came the change of currency in 1971 and very quickly, over the next decade, the house price doubled. Then over the next 10 years to 1990, the house prices more than doubled again, getting to $100,000.

In 1990, the market stuttered and went back by about 20%. That example is why Binvested founder Nathan Birch believes in buying 20% below market value. It protects the investor from downturns of that magnitude.

Keating’s fault?

In Australia, the “recession that we had to have” was blamed on Paul Keating. But if everything was Paul Keating’s fault, why did the same thing happen in the UK, where we’ve got house prices going backwards up until monetary policy changes in the late ‘90s and then we see house prices rise by crazy levels over only a couple of years? And why in the US? And a whole lot of other places?

It’s simple. Because of the manipulation of our currency. Fast forward to 2020/21 and onwards, we’re going to see massive levels of growth/inflation due to the level of debt that we’ve created. We’re going to be heading through a hyperinflationary depression.

 

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