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Will There Be A Crack-Up Boom?

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If people lose trust in money and the banking system, could this happen? Surely most people are struggling for money as it is? Can someone explain this "Crack-up boom" and how it works please?

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If people lose trust in money and the banking system, could this happen? Surely most people are struggling for money as it is? Can someone explain this "Crack-up boom" and how it works please?

Once people twig that inflation is running away and their money is visibly losing value over even short periods of time, they will divest themselves of cash as fast as they can and attempt to buy suitable assets.

If they can't get stuff like gold, they'll literally buy anything so as to be able to barter/sell it later and preserve some of the wealth represented by the cash.

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If people lose trust in money and the banking system, could this happen? Surely most people are struggling for money as it is? Can someone explain this "Crack-up boom" and how it works please?

If there are not enough resources to keep an economy growing, then the price of those resources in real terms will rise. This will result in monetary contraction as people begin to default on their debt-based monetary loans. The government tries to counteract this by printing more money to make up for the debt-based monetary defualts. However, this will only work if the initial collapse was due to oversupply of money in the absence of an under-supply of resources. This time the lack of resources is real and is waitiing there for us when we try to regrow our ecomies. At which point the same real-terms rises will kick back in plus the nominal rises that will occur as a result of the rise in the QEd money supply.

The worst of both worlds in other words.

Under the scenareo above, what we end up with is a real-world economy that is contracting with commensurate massive rises in the price of everyday essentials bought with cash and massive price falls in anything that is not essential and is bought with debt.

This, is what is coming in my opinion.

Edited by tallguy

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If there are not enough resources to keep an economy growing, then the price of those resources in real terms will rise. This will result in monetary contraction as people begin to default on their debt-based monetary loans. The government tries to counteract this by printing more money to make up for the debt-based monetary defualts. However, this will only work if the initial collapse was due to oversupply of money in the absence of an under-supply of resources. This time the lack of resources is real and is waitiing there for us when we try to regrow our ecomies. At which point the same real-terms rises will kick back in plus the nominal rises that will occur as a result of the rise in the QEd money supply.

The worst of both worlds in other words.

Under the scenareo above, what we end up with is a real-world economy that is contracting with commensurate massive rises in the price of everyday essentials bought with cash and massive price falls in anything that is not essential and is bought with debt.

This, is what is coming in my opinion.

Spot on! I've stocked up on toilet paper and enough (glass) bottled water to last me and my family at least a year.

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If people lose trust in money and the banking system, could this happen? Surely most people are struggling for money as it is? Can someone explain this "Crack-up boom" and how it works please?

I'd suggest you look at descriptions of what happened in Argentina for some guidance.

The current dominant mindset seems to be back to deflationary though. For now.

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If there are not enough resources to keep an economy growing, then the price of those resources in real terms will rise. This will result in monetary contraction as people begin to default on their debt-based monetary loans. The government tries to counteract this by printing more money to make up for the debt-based monetary defualts. However, this will only work if the initial collapse was due to oversupply of money in the absence of an under-supply of resources. This time the lack of resources is real and is waitiing there for us when we try to regrow our ecomies. At which point the same real-terms rises will kick back in plus the nominal rises that will occur as a result of the rise in the QEd money supply.

The worst of both worlds in other words.

Under the scenareo above, what we end up with is a real-world economy that is contracting with commensurate massive rises in the price of everyday essentials bought with cash and massive price falls in anything that is not essential and is bought with debt.

This, is what is coming in my opinion.

+1 ...

My opinion too. I'm fully invested in the junior mining sector - and will continue to hold my "money" in these real growth assets whilst the value of the pound looks set to further decline.

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Von Mises on the "crack-up boom".

The boom can last only as long as the credit expansion progresses at an ever-accelerated pace. The boom comes to an end as soon as additional quantities of fiduciary media are no longer thrown upon the loan market. But it could not last forever even if inflation and credit expansion were to go on endlessly. It would then encounter the barriers which prevent the boundless expansion of circulation credit. It would lead to the crack-up boom and the breakdown of the whole monetary system.

The credit expansion boom is built on the sands of banknotes and deposits. It must collapse. If the credit expansion is not stopped in time, the boom turns into the crack-up boom; the flight into real values begins, and the whole monetary system founders. Continuous inflation (credit expansion) must finally end in the crack-up boom and the complete breakdown of the currency system.

Also from:

http://crackupboom.net/2009/03/what-is-a-crack-up-boom/

This first stage of the inflationary process may last for many years. While it lasts, the prices of many goods and services are not yet adjusted to the altered money relation. There are still people in the country who have not yet become aware of the fact that they are confronted with a price revolution which will finally result in a considerable rise of all prices, although the extent of this rise will not be the same in the various commodities and services. These people still believe that prices one day will drop. Waiting for this day, they restrict their purchases and concomitantly increase their cash holdings. As long as such ideas are still held by public opinion, it is not yet too late for the government to abandon its inflationary policy.

But then, finally, the masses wake up. They become suddenly aware of the fact that inflation is a deliberate policy and will go on endlessly. A breakdown occurs. The crack-up boom appears. Everybody is anxious to swap his money against ‘real’ goods, no matter whether he needs them or not, no matter how much money he has to pay for them. Within a very short time, within a few weeks or even days, the things which were used as money are no longer used as media of exchange. They become scrap paper. Nobody wants to give away anything against them.

It was this that happened with the Continental currency in America in 1781, with the French mandats territoriaux in 1796, and with the German mark in 1923. It will happen again whenever the same conditions appear. If a thing has to be used as a medium of exchange, public opinion must not believe that the quantity of this thing will increase beyond all bounds. Inflation is a policy that cannot last

For indepth analysis try

http://www.traderview.com/about_traderview.cfm

Click the Tedbits tab at the top

starting back in may 2008 with Crack-up Boom part 1

Edited by smeagold

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Ironically for a house price crash forum, the best thing to do in this increasingly likely scenario is go cash light, asset rich.

For the more confident, borrow as much as you can and buy assets with it. For most people, the only asset you can buy with borrowed money is property.

Gold is all very well, but in this kind of crisis there's likely to be a huge bubble in the price, so you won't get very much of it and if the crisis doesn't happen you end up at a long queue of people desperate to sell it as the price collapses. Also, unlike a house you can't live in a pile of gold bars and might find yourself having to sell it to pay rent when you lose your job.

So for someone with a bit of money here are the options:

1. Be in cash, get totally wiped out if banks collapse or inflation takes off, if there's no crises see the real worth of your money eroded by 1-5% per year by inflation.

2. Be in gold (or a similar asset), you'll do OK if the crisis happens but if it doesn't expect to lose 30-80% of your money depending on how early you bought in before the price boomed.

3. Be in property or land, if the crisis doesn't happen the chances are property prices will drop by 25-40% relative to incomes, but even with inflation at current levels real prices won't fall by anything like that amount and you'll be no worse off than with cash in the bank over 5-10 years. If there is massive inflation (or even sustained inflation in the 6-12% range) your property is likely to soar in value by 100%+ as people clamour for assets, and if you've got a mortgage it's value will be wiped out by inflation.

If you think things will get really bad (Like Argentina 90s/Brazil 80s/Germany 30s/Zimbarbwe now bad), make sure you buy a property with a decent garden so you can grow some veg and don't buy right in city centres or near to food shops because there's a real chance you could get burned out during a protest or food riot...

So:

Buying property is no worse than having cash in the bank if the crisis does happen.

Buying property is way better than having cash in the bank if it does (and you hopefully have a nice place to live in too)

Now, everyone log into Rightmove and BUY, BUY, BUY!

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The Crack up Boom is the hyperinflation.

It assumes people can keep borrowing....to finance purchases.

the end result is no more credit and the deflation comes in...sometimes with a new currency.

starvation of the masses also is a sign.

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+1 ...

My opinion too. I'm fully invested in the junior mining sector - and will continue to hold my "money" in these real growth assets whilst the value of the pound looks set to further decline.

Care to share over in the investment section of the forum?

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Ironically for a house price crash forum, the best thing to do in this increasingly likely scenario is go cash light, asset rich.

For the more confident, borrow as much as you can and buy assets with it. For most people, the only asset you can buy with borrowed money is property.

Gold is all very well, but in this kind of crisis there's likely to be a huge bubble in the price, so you won't get very much of it and if the crisis doesn't happen you end up at a long queue of people desperate to sell it as the price collapses. Also, unlike a house you can't live in a pile of gold bars and might find yourself having to sell it to pay rent when you lose your job.

So for someone with a bit of money here are the options:

1. Be in cash, get totally wiped out if banks collapse or inflation takes off, if there's no crises see the real worth of your money eroded by 1-5% per year by inflation.

2. Be in gold (or a similar asset), you'll do OK if the crisis happens but if it doesn't expect to lose 30-80% of your money depending on how early you bought in before the price boomed.

3. Be in property or land, if the crisis doesn't happen the chances are property prices will drop by 25-40% relative to incomes, but even with inflation at current levels real prices won't fall by anything like that amount and you'll be no worse off than with cash in the bank over 5-10 years. If there is massive inflation (or even sustained inflation in the 6-12% range) your property is likely to soar in value by 100%+ as people clamour for assets, and if you've got a mortgage it's value will be wiped out by inflation.

If you think things will get really bad (Like Argentina 90s/Brazil 80s/Germany 30s/Zimbarbwe now bad), make sure you buy a property with a decent garden so you can grow some veg and don't buy right in city centres or near to food shops because there's a real chance you could get burned out during a protest or food riot...

So:

Buying property is no worse than having cash in the bank if the crisis does happen.

Buying property is way better than having cash in the bank if it does (and you hopefully have a nice place to live in too)

Now, everyone log into Rightmove and BUY, BUY, BUY!

If there is massive inflation people will be unable to buy much. Unemployment will rocket. Interest rates will rise. How are people going to be able to double house prices? Who is going to be doing the lending to fund this?

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Ironically for a house price crash forum, the best thing to do in this increasingly likely scenario is go cash light, asset rich.

For the more confident, borrow as much as you can and buy assets with it. For most people, the only asset you can buy with borrowed money is property.

Gold is all very well, but in this kind of crisis there's likely to be a huge bubble in the price, so you won't get very much of it and if the crisis doesn't happen you end up at a long queue of people desperate to sell it as the price collapses. Also, unlike a house you can't live in a pile of gold bars and might find yourself having to sell it to pay rent when you lose your job.

So for someone with a bit of money here are the options:

1. Be in cash, get totally wiped out if banks collapse or inflation takes off, if there's no crises see the real worth of your money eroded by 1-5% per year by inflation.

2. Be in gold (or a similar asset), you'll do OK if the crisis happens but if it doesn't expect to lose 30-80% of your money depending on how early you bought in before the price boomed.

3. Be in property or land, if the crisis doesn't happen the chances are property prices will drop by 25-40% relative to incomes, but even with inflation at current levels real prices won't fall by anything like that amount and you'll be no worse off than with cash in the bank over 5-10 years. If there is massive inflation (or even sustained inflation in the 6-12% range) your property is likely to soar in value by 100%+ as people clamour for assets, and if you've got a mortgage it's value will be wiped out by inflation.

If you think things will get really bad (Like Argentina 90s/Brazil 80s/Germany 30s/Zimbarbwe now bad), make sure you buy a property with a decent garden so you can grow some veg and don't buy right in city centres or near to food shops because there's a real chance you could get burned out during a protest or food riot...

So:

Buying property is no worse than having cash in the bank if the crisis does happen.

Buying property is way better than having cash in the bank if it does (and you hopefully have a nice place to live in too)

Now, everyone log into Rightmove and BUY, BUY, BUY!

If you're so loaded you can pay cash for a property and still have a wedge left over to buy assets like gold with afterwards, then it's probably not a bad idea to buy a property to live in, to hedge your bets. However, taking a massive mortgage and betting on inflation is practically ruled out now, as at last check all but 2 lenders were offering anything more than 5 year fixed rate mortgages, the other two were for 10 years. Unless you can pay off the balance in that time frame then you could be facing the mother of all interest rate rises when your mortgage resets. There's a reason banks are only offering short term fixed deals, they know what is likely to happen and are not going to let savvy investors take them for a ride via inflation.

Your point about cash is very accurate, risk losing the lot in one hit or see it eroded gradually by inflation.

However, precious metals will not start to move south until we see positive real interest rates (interest accrued after inflation is taken into account). For this to happen in the UK the base rate will need to increase 10 times, from 0.5% to 5%, before there is any downwards pressure on the gold/silver price whatsoever and even then it will only be marginal (real rates of around 5%, i.e. 9.6% base rate with RPI currently at 4.6% currently, will be neeeded for there to be start to be any significant negative pressure on the gold price). What would that do to all those people on trackers and SVR mortgages? HPC anyone? The govt. will try to stop this happening at all costs.

Mind you, the bond markets may force up interest rates anyway. Cue massive house price crash, unserviceable govt. debt interest, new banking crisis with no money to bail them out again and a crushed economy, ergo a weakened currency. So, even interest rates at the level they need to be, won't save those in cash, ultimately. Gold/silver will win the day either way, we are too deep in the mire to drag ourselves out now.

Edited by General Congreve

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If there is massive inflation people will be unable to buy much. Unemployment will rocket. Interest rates will rise. How are people going to be able to double house prices? Who is going to be doing the lending to fund this?

That's not the point, it's that the outstanding loan on the house will be payable in toilet paper, if we get monetary inflation, house prices could actually fall at the same time, it wouldn't matter. However, that will only be the case if your wages rise to chase inflation. But, I fear it'll be the case that prices will rise, but wages won't rise by as much, i.e. we will get poorer as a nation. After all, that's what's on the cards, we live on debt as nation and are net importers, technically we should be much poorer than we appear and what is happening now is addressing that imbalance.

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I'm starting to get quite scared.

The inflation/deflation debate is fast turning into a fight, which I think will trun into a full blown war over the next 12 months. I genuinely don't know which side to back, as there are utterly compeeling arguments on both sides.

The quotes above from von Mises are chilling.

Edited by WageslaveX14

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That's not the point, it's that the outstanding loan on the house will be payable in toilet paper, if we get monetary inflation, house prices could actually fall at the same time, it wouldn't matter. However, that will only be the case if your wages rise to chase inflation. But, I fear it'll be the case that prices will rise, but wages won't rise by as much, i.e. we will get poorer as a nation. After all, that's what's on the cards, we live on debt as nation and are net importers, technically we should be much poorer than we appear and what is happening now is addressing that imbalance.

You are arguing with me about something else.

He seemed to be implying that house prices would double in nominal terms when lots of people would not have a job and even more of them would have no money and no means to borrow any.

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Care to share over in the investment section of the forum?

Thanks - I didn't realise there was one - I'll take a look and post.

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You are arguing with me about something else.

He seemed to be implying that house prices would double in nominal terms when lots of people would not have a job and even more of them would have no money and no means to borrow any.

Fair point!

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Got anymore of those? a link perhaps?

my favourite...http://video.google.com/videoplay?docid=-2382683217626362775&q=krassimir+petrov#

Its the Austrian BUST....recaps just about everything.

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You are arguing with me about something else.

He seemed to be implying that house prices would double in nominal terms when lots of people would not have a job and even more of them would have no money and no means to borrow any.

During very high inflation nothing really has a value because cash is worthless and there's no medium of exchange.

But after the crisis, things calm down, there's a new currency in place and you own a house, instead of a bank account full of debased currency.

Of course, you could fail to keep up repayments on the mortgage if you lost your job. But for a government to raise interest rates so high that they kept pace with or even outpaced high inflation would be a global first. I can't think of a single example of an economy where the value of cash held on deposit or debts hasn't eroded during high inflation.

Another poster also argued that, 'by the time inflation takes off you won't be able to buy anything.' Of course, they're right. The point is if you think this crack-up-boom is coming, you need to buy assets like property and gold now.

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The perfect storm is brewing and I have prepared myself for the worst. I'll trade you one of my 3000 tins of tuna for one of your gold sovereigns or five loaves of bread. If we reach the end game meat will be worth 10x wheat. Man can not eat money or gold for that matter. This is no more irrational than HPI

tunaman

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During very high inflation nothing really has a value because cash is worthless and there's no medium of exchange.

But after the crisis, things calm down, there's a new currency in place and you own a house, instead of a bank account full of debased currency.

Of course, you could fail to keep up repayments on the mortgage if you lost your job. But for a government to raise interest rates so high that they kept pace with or even outpaced high inflation would be a global first. I can't think of a single example of an economy where the value of cash held on deposit or debts hasn't eroded during high inflation.

Another poster also argued that, 'by the time inflation takes off you won't be able to buy anything.' Of course, they're right. The point is if you think this crack-up-boom is coming, you need to buy assets like property and gold now.

rates would rise very fast...they did in Zimbabwe...its the people that get new cash fast that benefit...late receivers of cash ( the public and borrowers) will find rates rise faster than their ability to pay.

As for keeping your property, Local Authorities are going to need all the cash they can get, and the obvious target is the house owner.

Huge property taxes enforced by possession teams out to seek revenge.....

It is truly a nightmare scenario.

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If you think things will get really bad (Like Argentina 90s/Brazil 80s/Germany 30s/Zimbarbwe now bad), make sure you buy a property with a decent garden so you can grow some veg ...

So:

Buying property is no worse than having cash in the bank if the crisis does happen.

Buying property is way better than having cash in the bank if it does (and you hopefully have a nice place to live in too)

That was my conclusion a couple of months ago, just bought a small house with big plot, lots of fruit trees, a piggery and room to grow veg. Limited downside but plenty of wealth protection.

Fed up with losing purchasing power with my STR fund although I will be keeping my NS&I index-linked certs. Anything else left in the banking system was used as a ~60% deposit.

What little deflation there was has now finished, with the current political/financial leaders, a crack-up boom looks odds on to me.

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However, precious metals will not start to move south until we see positive real interest rates (interest accrued after inflation is taken into account). For this to happen in the UK the base rate will need to increase 10 times, from 0.5% to 5%, before there is any downwards pressure on the gold/silver price whatsoever and even then it will only be marginal (real rates of around 5%, i.e. 9.6% base rate with RPI currently at 4.6% currently, will be neeeded for there to be start to be any significant negative pressure on the gold price). What would that do to all those people on trackers and SVR mortgages? HPC anyone? The govt. will try to stop this happening at all costs.

Excellent post. Marc Faber said the same in his report last month.

It is only when you get +ive real interest rates that precious metals tank. Emperical evidence supports this.

No chance of that over the next 5 years until gilts and sterling take a hammering and the BoE HAVE to raise rates into real territory.

They are chancing negative rates for as long as possible. Delaying what is right to do.

In such an environment cash and bonds are trash.

Edited by ringledman

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  • 145 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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