House Price Inflation

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House price Inflation

 

It is a conventional economics axiom that increasing the money supply without a concomitant increase in production causes inflation.

In the last thirtyfive years we have had low inflation in  wages. 

Essentials, including  land , and thence housing and farm prices, have gone up many times the rate of wage rises. 

Land inflation is driven by private Banking's incentive to print money.  The more money they supply the more interest they can make.

Unfortunately, there is also a strong natural incentive  to lend only on solid security, such as land and buildings.

Banks know better than anyone the inherent insecurity and instability of financial instruments, including shares.

Mortgage law in most Western countries  favours lending on land. Unlike other investments, or lending, if the value of the security, land,  goes down, the borrower is still liable for the full amount of the loan and interest. The bank is indemnified against loss.

For example, in New Zealand, the bank has priority over all other creditors, including contractors.

Lending on business and other assets does not offer the same security. The bank has to wait in line with other creditors and, normally,  cannot continue claims in excess of their proportion of the sale.

Banks, while  reluctant to risk their own money, are happy to risk small savers investments.  Our pension funds, bank deposits and savings.

These schemes, whether shares, derivatives, hedge funds or other financial instruments are designed so that banks can gamble with our money. Win or lose they always get a cut.

De-regulation of banking has removed almost all constraints on lending and the amount of wealth banks can take.

Loses come out of our pensions and other savings.  Or, if they really stuff it up, taxpayers are expected to borrow more from them to pay for it. "The bailout".

The total monetary value of financial instruments and debt is now so great that a crash, or super inflation, is inevitable if it is ever fully spent on real production.

Does anyone really think that infinitely compounding interest is possible in a world with finite resources.

While we lose our savings, houses and farms, bankers still get richer.

Given the difficulty in obtaining bank finance without land as security, favourable tax treatments (in Western countries   for banks,  homeowners, landowners and farmers ), incentives for banks to avoid  risks inherent in other investment  (The inevitable crash of Banker's ponzi schemes and the likely devaluation of currency denominated investments) it is not surprising that  investors prefer land.

The Chinese Government buying up land worldwide with US dollars, before they become worthless, is only a minor example.

Hence land prices rising much faster than wages.

Our economy, along with most other Western economies has been skewed, towards speculation in existing assets, by banks following their own self interest. The "invisible hand" has failed

Kia-ora

A reminder of why we have to change our economic paradigm.

Our present one is not sustainable, even short term.


“Memo To The #Occupied Movement (A Post-Growth Economy)
By Richard Heinberg
06 October, 2011
Post Carbon Institute
Here’s a fact that’s hard for most Americans to swallow: economic growth is over. Given the finite nature of our planet and its resources, the recent trend of global economic expansion was destined to end. No stimulus package or slashing of social programs is going to flip the economy back to an expansionary trajectory. We’ve hit the proverbial wall, and this will be the defining reality of our lives from now on.
The growth-seeking political-economic system has failed us. Today that system is dominated by Wall Street. “Goldman Sachs rules the world,” trader Alessio Rastani told us in a now-viral BBC interview. I met people like Rastani in researching my book, The End of Growth.
At one lavish conference, 800 global investors packed a hotel ballroom to consider climate change. There was no talk of how to avert or mitigate floods and droughts. Instead, the discussion focused on profiting from warming with — no joke — weather derivatives. These folks were just doing their job, despite any private feelings of concern, remorse, or dread. And each was getting paid enough to single-handedly fund a midsize school district.
Both Wall Street and Washington are trying to do something impossible: grow human consumption forever in a world of limited energy, minerals, water, topsoil, and biodiversity, all while protecting and expanding the riches of the top one percent. If economic growth is over, that means we can no longer count on a rising tide to lift all boats. Under these conditions, extreme income inequality is not just unfair, it is socially unsustainable.
It’s strategic to bring protest to Wall Street rather than Washington. We must go directly to the crime scene — not with a request for reforms, but with an arrest warrant from the people.
You courageous people in the #occupy movement are absolutely right in saying the system is broken, greedy, and unfair. But when our discussion turns to replacing the current system, we’ve got to embrace a bigger view of reality than the one held by stock traders and politicians. It’s not just our wealth they want to control, it’s our vision for what is both possible and necessary. We need a post-growth economy that works both for people (all of them) and for the rest of nature: a localized economy based on renewable resources harvested at nature’s rates of replenishment, not a fossil-fueled global economy driven by the imperative of ever-higher returns on investment."""

New Zealand at the Crossroads

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 The NYT on the "success" of Neo-Liberalism.

As "No Right Turn" says this graphic is "an appalling indictment of Neo-Liberalism".

In New Zealand we have seen the effects just this year. Over 17% increase in wealth for the top few percent while 200 000 children live in relative poverty.

The pattern in New Zealand, since our great Neo-Liberal experiment, following the USA, Ireland and UK, has been the same.

 Coddling the rich is destroying the American dream.

"No matter how many times it's said, lowering tax rates for the highest income Americans does not create jobs or stimulate the economy. In fact, a detailed look reveals that the overall economy does slightly better when taxes at the top are significantly higher. This also holds true on the state level, as states with higher top personal tax rates have growth rates and median incomes that average greater than those with low (or even no) taxes. No matter how many times the experiment is repeated, or how long you extend the results, cutting taxes for the wealthy does not stimulate growth."

Most of the wealth earned by Americans went to corporates.
"Corporate profits captured 88% of the growth in real national income while aggregate wages and salaries accounted for only slightly more than 1% of the growth in real national income".

In New Zealand cutting taxes for the wealthy was supposed to stimulate the economy. Since the first round of high end tax cuts,  investment in the productive economy, wages and manufacturing, in New Zealand, stagnated, and capital flew to gambles on offshore markets.

Decimation of Union and employee rights, and cuts in Government spending  has resulted in huge drops in real income, for all but a few New Zealanders.

New Zealand is at the crossroads.
We can vote for National and ACT, and join the list of failed States like the USA and UK.

Another three years of failed Neo-Liberal policies will destroy the country we know.

Do we want third generation unemployment and riots in the streets like the UK. Or the repressive, unequal, surveillance society the USA has become.

For the first time since 1984 we have a clear choice. Continue down a failed Neo-Liberal road, or Own our Future.

We can vote for the Greens   and Labour. For  sensible policies, which were middle of the road, before Neo- Liberal religious hysteria took over.