Have you heard the expression “Dragging money from the moon?”
When discussing lenders of last resort and appropriate rate of interest in the 1870s, influential Victorian Walter Bagehot was quoted as having said that “seven per cent will pull gold from the ground”, later echoed in a London money market (and European banker) saying of the early 1900s that “seven per cent will drag money from the moon”.
The view was that high enough interest rates and tight enough monetary policy in the major financial centres could ultimately suck in money from almost anywhere.
Interest rates and what’s deemed to constitute tight monetary policy has changed more than a bit over the decades, while exchange rate expectations have also changed almost beyond measure.
Yet still today humans are driven to act as we do by pain and pleasure, and, in a similar vein, financial markets continue to be driven by fear and greed.
- low interest rates,
- negative gearing,
- measured land release,
- first homebuyer grants (?),
- under building and rising rents,
- generally greedy Baby Boomers,
- and that old chatroom favourite “more buyers than sellers”!
Why Sydney and Melbourne have had property booms but not some other cities is often debated.
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