Our Economies Run on Housing Bubbles
We are witnessing the demise of the world’s two largest economic power blocks, the US and EU. Given deteriorating economic conditions on both sides of the Atlantic, the demise should come as no surprise.
The debt levels are not just unprecedented; they would until recently have been unimaginable. When the conditions for today’s debt were first created in the second half of the 20th century, people had yet to wrap their minds around the opportunities and possibilities that were coming on offer. Once they did, they ran with it.
The survival of our economies today depends on the existence of housing bubbles. No bubble = no money creation = no functioning economy.
In the short term we should lower private debt levels and raise public debt to encourage economic activity, and aim for more and better jobs. But we’re doing the opposite: austerity measures are geared towards lowering public debt while they cut the consumer spending power that makes up 60-70% of our economies. Meanwhile, housing bubbles raise private debt through the roof.
This is today’s general economic dynamic. It’s controlled by the price of debt. However, as interest rates make the price of debt look low, the real price is paid on Main Street, in the real economy, where the quality of jobs, if not the quantity, has fallen dramatically, and people can only survive by going deeper into more debt.
It’s ironic that the US isn’t either the first, or the most at risk this time around. There are plenty other housing markets with much bigger bubbles. The potential consequences of such developments are difficult to overestimate, because the banking systems—and entire economies—depend on these bubbles.
The aftermath will be chaotic, and it will be interesting to see what happens to the banks in all the countries where bubbles have been engineered once prices start dropping. It’s not healthy for an economy to depend on bubbles. It’s also not healthy to depend on private banks for the creation of a society’s money. It’s unhealthy, unnecessary and unethical. We’re about to see why.