Turbines tarnish property values:
A FEDERAL magistrate has accepted that wind farms slash the
value of surrounding properties, saying she found it "hard to
imagine" any prospective buyer could ignore such development.
In a decision believed to be the first time an Australian
court has recognised the adverse financial impact of wind farms for neighbours,
magistrate Kate Hughes ruled a property would be worth 17 per cent less if a
14-turbine facility were erected next door. Read more...
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SME
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Stufftopia wants to be your friend-in-the-know:
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There are four founders – Rick Dzekman, Ned Jackman, Jarryd
Clark and Simon Keung – all of whom are based in Sydney.
With no financial backing, Stufftopia launched a public beta
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Markets
The Australian Market closed flat today due to lost momentum. Read more...
Some more insight from the experts at the Daily Reckoning Australia:
How
Shadow Banking Turns Sewage Water into a Double Malt Whiskey (Click here to view the original article)
By Greg Canavan •
February 12th, 2013
Yesterday we floated the idea that the Fed, and central
banks in general, don't actually 'print' money. They just monetise previously created credit.
We know that probably sounds confusing, so we're going to delve into the topic
more deeply today. We'll also show you why the Fed is becoming just a tad
concerned about the effects of its 'monetisation' program.
People create credit and money, not central banks. A central bank sets the price
of money and credit. Individuals or businesses create money by borrowing it
into existence.
Take the example of a (rare) first home buyer borrowing
$250k to build a home. The money didn't exist previously but, using their
credit and good standing, the bank agrees to create the money and credit their
account.
The first home buyer then pays for the various services
required to build the house, and the money flows through the economy. The loan
therefore increases the amount of money flowing through the economy, which
winds up back in various different bank accounts, which go on to fund other
loans etc.
So the person now has a house as their asset, and a $250k
debt to the bank as a liability. But 6 months later they lose their job, and
can't make their loan repayments. The loan turns bad and the bank has to write
down the value of it.
Imagine, for a moment, that this happens on a large scale.
If the bank was to write the loan down in value it would wipe out shareholder
equity and render it insolvent. It doesn't want to do that so it turns to the
central bank for help. It says the situation is just temporary. It has a
liquidity problem, not a solvency problem.
The central bank buys the loans off the bank for 100 cents
in the dollar, even though they might be worth only 50 cents. In doing this,
the central bank is monetising previously created credit that has turned 'bad'.
This is how central banks try to avoid deflation. If
inflation is just growth in the creation of credit money, deflation is the destruction of this money
via loans turning bad.
This is a very basic example of how central banks operate in
the normal banking system.
But the real action happens in what is known as the 'shadow
banking' system. This is truly a wonder of modern finance. It's a system that
creates more 'money' than central banks could ever dream of.
And therein lays the problem. Shadow banking is an out
of control beast. Its fuel is hope...hope provided by central banks that they
won't let speculators go under.
What is shadow banking? It's a system of banking for very
large organisations (money market funds, pension funds, insurers, hedge funds
etc) that is largely unregulated.
Put simply, the shadow banking sector monetises the debt
created in the traditional banking sector and uses this money to speculate in
the asset and derivative markets. In other words, it transforms long dated,
illiquid debt instruments into 'money'.
If you have a 10-year US government bond, you can go to an
investment bank or broker and leave it as security (collateral) for an
overnight cash loan. You then have 'money' to play with, and can keep rolling
your loan over as long as you don't do something stupid.
Even if you don't have good collateral in the form of
treasury securities, the shadow banking system has a solution for you. Through
various relationships with the players involved (brokers, clearinghouses etc)
you can swap a junk bond for a treasury note and then go elsewhere with your
treasury note and obtain cash.
The shadow banking system is a place where you can turn
sewage water into a double malt whiskey.
This all works amazingly well when participants are
'hopeful' that nothing will go wrong. There is faith in even the poorest form
of collateral, like junk bonds, and when sentiment is so bullish, the system
turns nearly all forms of market debt into 'money'.
But last week, a little known Fed member, Governor Jeremy
Stein, gave a speech titled 'Overheating in Credit Markets:
Origins, Measurement, and Policy Responses'. It's a bit dense, but well worth
the read.
He basically shines a light on the largely unregulated
shadow banking system, and ponders how the Fed should respond to the excesses
that are beginning to emerge. He doubts that regulation can have a meaningful
effect on curbing excesses, and wonders whether monetary policy should play a
greater role.
Such a 'solution' may sound completely rational to a person
with common sense. But coming from a Fed governor, it's a big deal. If Bernanke
had made these comments, markets would have plunged.
The Fed knows the real turmoil in the credit crisis had its
origins in shadow banking. It was where the double malt whiskey went back to
being sewage water.
That it will happen again is assured. It always does. That
the Fed is wondering aloud how it might prevent it is also another obvious sign
of the inherent fragility of the system.
So, keep one eye on the exit, because the Fed is getting
nervous.
And buy some gold, which is currently on sale for the
Chinese New Year.
Diggers and Drillers editor Dr Alex Cowie has found a
profitable way to do so, here.
Regards,
Greg Canavan
for The Daily Reckoning Australia
for The Daily Reckoning Australia
Until next time dear readers...
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