Housing Market Economics for the Younger Generation and the Prisoners Dilemma
Housing-Market / UK Housing Apr 06, 2015 - 03:48 PM GMTBy: Submissions
Tom Naysburn writes: Politicians and the Media now claim they recognise that the general public are fed up with politics and politicians like never before but they never seem to acknowledge the reasons why. Most of them may genuinely not know because the answers require a specialist knowledge but the few who do are suppressing the truth of the matter from the disillusioned citizens. Listen up because I am now going to explain in the simplest way I can.
Allow me to humbly divulge some pertinent facts aimed directly at the younger generation with which to enlighten the situation. I was born in 1973 in Upton upon Severn, my Dad was a teacher who earned a salary of £9,750 pa. We lived in a house bought the same year for £18,500. Fast forward to the here and now, that same house has been just sold for £270,000. A young teacher in an equivalent position today would be earning £24,000 pa. Agricultural land in 1973 was worth between £400-£600 acre, today in Upton land trades at £8000 -£15,000+ acre. In 40 years the salary of a teacher, who I hope you agree is a good representation of an average citizen, has increased 146% whereas the house has increased 1,360% in value. The implications of this phenomena to society is truly horrifying, even without considering the effects of general price inflation on the purchasing power of the salary.
The cost of housing in the UK has run completely out of control and it is no coincidence that in 1973 the UK came off the Gold Standard which pegged the value of Sterling to the price of Gold. Now this is a subject which is made deliberately confusing in school and general text, also know as financial economic obfuscation. After the Gold Standard came Fiat Monetary Economics and the financialisation of the Country, the result of Government in collusion with the Banks, betting the Country on the housing market. The Government gained the ability to finance profligate budget deficits and the Banks got unbridled fractional reserve rules and regulations. I know because I’ve been unfortunate to have been working in the belly of the beast since leaving the Exeter University Economics Department 20 years ago.
Under the Gold Standard the £ in your pocket was theoretically redeemable in Gold and therefore the growth in the money supply was limited by hard work, limited supply and ultimately the amount of Gold in the Bank of England vaults. Under the Fiat system the supply of money is only limited by “a banking license” and the number of fools suckered into the belief of rising asset prices in-perpetuity. This may seem controversial because it is not taught in school economics lessons but this isn’t surprising when one realises this knowledge isn’t for general broadcast or consumption.
For Fiat money to survive the whole system must be “gamed” or “fixed” to suppress the “truth of the thing”. A Fiat or paper money system has been tried many times before and has always ended the same way, in failure, which is why I am at liberty to talk about it. It is a confidence trick, a thinly veiled game of wills between the banks and knowledgeable asset holders and the those who aren’t. The biggest losers are the following generations which are required, as in the case above, to come over the top and pay £270,000 for house with entirely borrowed money which under the Gold Standard system would cost around £60,000. The difference you can think of as the amount brought forward from the future at the expense of the next generation.
The depths of the deception in the Fiat system is the fact that it may continue for many years, even overlapping a generation or two, but like all illusions it is built on sand. It’s greatest weakness is inherent in its design. It’s a slight of hand, an illusion of confidence, a deception of nature, which when understood can be exposed, never to be rebuilt. The fact you have read this means you have seen the illusion, and in the same way you can’t unhear an argument, or unsee an image, you can’t unread these words. Let me explain a little further.
Lets consider the young family which has just bought the 3 bed house in Ham View, Upton upon Severn for £270,000. Suppose, which is unlikely, that the teacher is the sole income earner, it means they have paid over x11 times annual income for the property. They would have been required to put up a deposit of at least 20% or £54,000 which is most likely to have come from a lottery win, bank robbery or their parents who would have been the major beneficiary of the last 40 years if they were home owners.
If housing prices continue to rise it will be increasingly unaffordable for the following generation unless they are a single child who can inherit the family home. If the parents have more than one child those children can only hope to inherit half of the family home meaning they can expect to live a life in half the comfort of that of their parents, they will in effect be regressing down the pyramid of social status. Add to the mix increasing life expectancy and it doesn’t take a leap of faith to see a scenario whereby the younger generation will be entirely a renting class and actually live shorter lives than the parents. So, is it a matter of time before it’s announced we will all be subject to a Chinese one-child only policy?
Imagine the scenario in 20 years time when the next teacher is looking to start a family in Upton upon Severn. The 3 bed detached in Ham View is £1,000,000 but he is only paid a £60,000 starting salary, its totally unrealistic and inconceivable in every possible way unless interest rates are negative 10% and the bank pays you £80,000 a year to borrow the money! No, the edifice would have fallen long before that perverse notion. If this is how we are going to progress as a society, then all hope is lost.
The more the debt bubble expands the more unstable it becomes because the system gets ever more sensitive to interest rate rises. When borrowing 11 times multiples of income, increases in interest rates risk bankrupting the borrower because they don’t have the spare income to finance the additional mortgage payments. This also applies to the country at large with the Government debt standing at over £1.5 trillion (which doesn’t include the BofE liabilities). Even if the borrower had fixed the mortgage or interest rate there will inevitably come a time when the debt needs to be refinanced meaning nobody can escape the trap. This makes the prospect of interest rates reverting back to median levels seen over the last 40 years highly improbable simply because a) the Government couldn’t afford to pay them, and b) other recent borrowers and mortgage holders couldn’t afford the interest payments either.
An alternative scenario is that incomes start to rise because, say we left the EU and UKIP influenced a strict immigration control policy choking off the flow of cheap unskilled labour in turn forcing wages up from the bottom and sparking a wage price spiral. In this case demand placed on the housing market would have subdued prices but the wage inflation would force the Bank of England to raise interest rates to curb the prospect of a more widespread cost push inflation. So, as you can now see, which ever way you look at it, interest rates rises back toward median levels cannot be afforded, all simply because of Fiat money and the short term motivations of greed, hubris and the complicity of Governments allowing the Bankers free reign to enslave.
The system is bust, morally and financially, it’s a simple as that. They know it, and now so do you. If the markets were allowed to self correct, asset prices, in this case house prices, would correct lower back into some resemblance of balance but this has not been allowed to happen through the huge QE money printing schemes to prop up the stock and bond markets and re-capitalise the Banks themselves.
So what are they doing about it?
They feel they have no choice but to double and treble down on the deception because they can’t admit the experiment of Fiat money was wrong. That’s what happens when people in power aren’t held to account, they compound problems instead of confronting them. Ego and Cui Bono is a powerful human force. By doubling down I mean they feel they can manage their way out of the woods by engineering a scenario of neither high growth nor high inflation so that interest rates stay low forever. This can only be done by further gaming of the system and the circuitous rigging of markets, data and key indicators. All the RPI, CPI, GDP….data is rigged to the point of farce. This is why you can see the hands of the Banks increasingly everywhere in the machinery of Government. For example, its no coincidence the new Head of the BBC Trust is a long-standing inmate of HSBC, who has made the Faustian bargain. When you want to control the narrative you need people at the head of the propaganda service to ensure it, it’s as simple as that.
So, this leads to the Prisoners Dilemma in Game theory, the classic academic theory based on rationality, but as most people know the human condition is more irrational than rational, just ask anybody in love or a believer in religion. This leaves a choice, to become more rational we must denounce religion and love to become more robotic and intellectually and morally enslaved to peruse the current course, so again, which ever way you look at the problem the conclusion persists, we are moving in the wrong direction simply because of Fiat Money.
The root of all our problems contained in two words, Fiat Money, yet nobody in positions of leadership or authority dare utter them.
By Tom Naysburn
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