Posted by: Steven Shaw | September 24, 2008

Coming Financial Tsunami

The credit crisis (which should be called a debt crisis) is hitting the news in a big way here in Australia again. People are tending to think that the crunch has “hit” already last week or perhaps that this is the “second hit”. However, I get the feeling that we are all on the beach watching the tide go way out. Perhaps we come across a few insolvent US investment banks in the wet sand. Don’t just sit there! Get off the beach and head inland at pace!

What does this mean for Brisbane property prices? I can only imagine that the recent news will at least give buyers pause. A sustained pause would be enough to melt away a few percentage points. I’ve seen recent commentary which puts the bottom of the market ahead in 2010. I figure that’s a little optimistic and that the property market slump will be somewhat more sustained than that – say bottom in 2012.

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Responses

  1. Mr Shaw, you asked how “Stabilization Is Chaos” is reasoned over on Mises.org.

    If I may, it is because of the lack of ability of arbitrary limits to meet needs as circumstances change.

    For instance, a “price stabilization” effort removes the ability for changes in price to signal where the commodity is in greater demand. If a big storm is coming, and the price of gas is “stabilized”, people will all fill up on gas whether they need it or not, causing a shortage. People who actually need fuel cannot get it at all at any price.

    A higher price not only acts as a built-in rationing method, it also signals suppliers that there are profits to be made for those who supply the needed commodity to where the price is higher rather than where the price is lower. So it works not only at the retail level, but at the wholesale level too.

    If, as in the 1970s, there is “stabilization” of supply, you again end up with shortages because suppliers are restricted to where they can deliver product. Oh sure, it might work for a little while, but the fact is that people’s preferences change constantly.

    The method of matching supply to demand that has evolved over time is best met through a free market. Flexible prices act as both forward and backward signals, telling suppliers and customers what it most in demand or where the bargains are.

    These changes are _softened_ by profit seekers and bargain hunters. Left alone, order is not merely maintained it is enhanced.

    Efforts at stabilizing are what create chaos, by interfering with the very real communications that prices represent.

  2. Thanks for the explanation Curt referring to the “Stabilization is Chaos” T-Shirt over at the Mises Institute Blog. I certainly see the evils of price fixing. I’ve never even heard of the “stabilisation” of supply”.

    My main misunderstanding was what was meant by “stabilisation”. I would say now it’s clear to say “intervention is chaos” or “govt intervention is chaos”.

    Stable markets seem like a good thing (if reached naturally I suppose). Information/disclosure may lead to stabilisation – perhaps after a period of volatility.


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