I don't truly know if the predictions of a US dollar crash are true, but this comment has some internal logic to it:
Rising house prices won't make you rich (at least not for the average person), and housing bubbles are almost certainly not a sign of a healthy economy. In this particular case it's a really bad thing.
This isn't about Tory vs Labour, rent controls, building more homes, immigration, or whatever. This chaff is peddled by the media to keep you bamboozled, sedated, or angered by some arbitrary distraction. To understand what is going on first you have to take a giant step back, and observe what has happened to the global economy since 2008.
Various rounds of QE have thrown trillions into economies to get them 'moving' again. Without even getting into the 'logic' of solving debt problems by creating significantly more debt, let's just consider where this money came from, and where this money went.
The origin of the money used in QE is increased government debt. The form of this money is government issued bonds, often ending up in countries like China. Except there is a problem. QE means our debts have become colossal and we are having difficulty paying the interest, hence the cuts we experience. Interest rates are also at record lows which implies we will have extreme difficulty servicing this debt when interest rates inevitably rise.
(And yes I'm talking about housing here, please bear with me).
Before we return to bonds, where did all this money from QE go? Governments gave it to bankers to gamble on the markets. After all, the banks just about tapped out their mortgage scams by 2008 (causing the crash), what else could they do with all this money? The net result is that banks (and other speculators) have massively inflated the markets. Even banks realize this is untenable and some of them are sitting on vast amounts of QE unable to do anything with it. They daren't lend it, and they daren't speculate with it.
What does this mean?
Consider a speculator. Where are they going to put their money? Bonds are looking dodgy given the size of government debts. The markets have been pushed up about as far as they can go. So investors put their money into land and property (and anything else they can think of). This has led to numerous property bubbles all over the planet, not just London.
It's very important to realize that no new wealth has been created here. No jobs, no businesses, no production, no construction, nothing. Basically governments, banks, and other speculators have all been playing silly buggers in a desperate attempt to perpetuate this whole epic saga as long as possible.
Governments, banks, and the media, will all tell you that we recovered from the crash, the economy is growing, growth is good, and blah blah blah. The truth is that WE ARE STILL IN THE 2007/8 CRASH!!! Except we didn't just hit the pause button with QE. We doubled and tripled our debts without addressing the root cause of the crisis, and now it's monstrously worse than in 2008.
As a direct consequence of this extraordinary behaviour, the American dollar WILL FAIL as the world's reserve currency. We are literally watching history in the making, events more significant than landing on the moon.
Or to put it a different way, in an attempt to solve the 2007/8 crash we responded by making the BIGGEST TRANSFER OF WEALTH IN THE HISTORY OF MANKIND (from taxpayers to the banks that caused the crash).
So you see why rising house prices aren't making you rich? There is no new wealth here, only a whole load of new debt. It's a zero-sum game at best. Obviously you can make a lot of money in this environment if you're in a position to buy and sell houses. But most people can't given they actually have to live in their house, and will still be living in their house when prices start falling.
What happens next?
House prices are going to keep rising, and probably by a large amount. Investors will not want US bonds given the US debt is looking untenable. China is getting nervous, slowly pulling out and looking for an alternative global reserve currency. The markets are already starting to fall. One of the next best places to invest cash is property...
Bottom line, if you're poor and living in London then you're screwed. Outside of a housing bubble zone you'll be much better off in terms of stability.
Regarding the global economy, watch out for the collapse of the US dollar. It's impossible to know exactly what will trigger this, but when it happens it will be rapid and catastrophic, as the now amplified 'suspended' 2008 crash implodes the entire economic system.
Here in the UK the result will range from bad to hideous, depending somewhat on faith in the Euro and Sterling.
No comments:
Post a Comment