As I said, I was only responding to the OPs doom and gloom scenario, maybe if the next crash is as bad as he seems to think it will be house prices will be the least of our worries.
The gloom-and-doom only happens if interest rates rise sufficiently to stop the mounting inflationary pressures. The truth is that interest rates probably cannot ever rise because that would crash economies across the Western world. And that means that central banks and governments have to find other ways of stemming inflation.
Just as they can print dollars, pounds and Euros, they can suck them back out again by buying bonds and raising the reserve requirements for the investment and retail banks. Controlling inflation this way is one of the cornerstones of Modern Monetary Theory (MMT) also known as More Money Today!
In times of crisis, you give everybody and their mothers-in-law and the cat all them 'stimmy' cheques and furlough payments and then when things are back to normal, you suck the surplus money back out of the system to prevent hyperinflation.
This sounds lovely in theory - but doing this is to play with fire and here's why -
1. It leads to
asset price inflation. All that loose 'stimmy' money gets pumped into crazy things like retail share buying, cryptocurrencies and house-price inflation. Bubbles blow up and bubbles burst.
2.
People lose faith in valuations and money itself.
3. The asset-holders are the rich, therefore (you've guessed it!)
the rich get richer!
4. All sorts of people miss out on all that free money. Casual labour, waiters and cooks, anyone that is part of the gig economy like Uber drivers. Just as the rich get richer,
the poor get poorer.
5.
Productivity falls through the floor. Nominal GDP may rise slightly or remain stable, but the real economy tanks. Why bother working when we can earn a living by playing with stocks, bonds, futures and cryptos? And if you are on furlough, 80% for doing F-all whilst you improve the house, work on the side, lie in bed scratching yourself - whatever - sounds like a better deal than getting up every morning and going to work!
6. We still have to live, so
we suck-in imports and pay for them with QE money we created. Now, all that money is out of the control of the central bank. Soon, it comes wandering back, looking for assets to buy
--> more asset price inflation!
7.
We destructure our real economy by divesting ourselves of the skills, infrastructure and factories required to manufacture things. The rapid demise of manufacturing in the UK and the US is truly eye-watering! Of the dozens and dozens of film camera manufacturers in those two countries, just two US brands are left - Red and Panavision. The same or similar happened across all products, from furniture to test equipment, from household white goods to cars. What little is left are mostly screwdriver-factories owned outside the UK assembling foreign-built parts.
8.
We expand the role of the central banks in the economy beyond anything that can be described as either prudent or wise. Over 60% of all US mortgages are now owned by the Fed who has also been buying up company bonds. The BoE has been up to similar games via its Asset Purchase Scheme and its Asset Purchase Facility. After the 2010 crisis, the APF fund shot up from c.a. £5bn to £180bn. In November it was at £600bn according to the FT.
9.
We expand the role of government in the economy beyond anything that can be described as either prudent or wise. Governments are the opposite of production - they are economically parasitic. Governments do not produce anything. Their role is to provide the infrastructure upon which we rely in order to be productive. The means the establishment of law and order and a civil code and the enabling the provision of electricity, water, roads, healthcare, education, etc., whether that be done privately or by arms of government directly. MMT however leads inexorably to governments taking over ownership of banks and other private enterprises deemed 'Too big to fail'. When government spending accounts for more than 35% of GDP, the economy starts to shrink and
tax revenues fall dramatically. When Wilson tried to increase taxes which were already at 38% of GDP, tax revenues fell to 32% of GDP.
10.
MMT hands the reins of power to outside, non-democratic forces. By printing money to pay for all those lovely new toys from China, cars from Germany and Japan and food from Belgium and Spain, billions of pounds go into pockets outside the UK and outside any control by the BoE. Those billions can be used in all sorts of interesting ways - not all to the benefit of the UK or its population. That money may be used to drain talent away or buy strategic assets or IP or buy influence and friends. US dollars are today being used by China to finance the One Road, One Belt initiative - the largest infrastructure project the world has ever seen.
So there you have it! The top ten reasons (there are others!) why MMT could spell the end of our economy as we know it today - but fear not! It is all part of 'The Great Reset!' as advocated by 'The World Economic Forum'.
That's the Davos crowd - a self-selected group of billionaires who only have our best interests at heart!
And at its head one Professor Klaus Schwaab.
