The Mother of All Deflations

The comments below are an edited and abridged synopsis of an article by Raul Ilargi Meijer

Ilargi discusses an article written by Steve Keen (included here) about the real estate market. Keen explains where the housing market went off the rails, what short-sighted interests politicians have in subverting them, and why housing markets are unlike any other markets (the turnover of existing properties is financed with newly created money).

The Mother of All Deflations | BullionBuzzIt’s not supply and demand that rule the market today; it’s available debt (credit). Banks can, and will, always create more debt at the drop of a hat. That is, until they can’t, and then house prices must and will fall off a cliff. In Steve’s words: “…mortgage credit causes house prices to rise, leading to yet more credit being taken on until, as in 2008, the process breaks down. And it has to break down, because the only way to sustain it is for debt to continue rising faster than income.”

It’s becoming obvious that the present system is set to go down since, as Steve puts it, the only way to sustain it is for debt to continue rising faster than income, and we all know where that goes. We can advocate a version of controlled demolition, but who would lead that?

The banks have the most powerful seat at the table right now, and controlled demolition of what we have today, as sensible as it may be for society at large, is not for them. Which makes this not only a financial problem, but a political one too. Down the line, it doesn’t even seem to matter much who gives out the loans, there will be few takers.

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