The Budget – Housing

Yesterdays budget yet again demonstrated that the government really has little idea of what is causing our problems or any ideas of what to do about it. With £1 trillion in debt we get a budget with headlines of 1p off beer and help to the housing market. Of course I know that with the current monetary system it is impossible to pay off the debt without reducing the money supply so without fundamental change any attempt to pay of the debt will be flawed.

That said surely it must appear rather strange that on the one hand the government is saying they’re trying to pay down the national debt but on the other they are putting in place policies to encourage individuals to take on more debt. So the problem to the debt problem is more debt … funnily enough in the current paradigm that may well be true.

I would like to focus on Georges housing policies and make a few points

1. Firstly I do not understand the focus on getting the housing market moving. This is a non productive part of the economy. Just think about it – under this paradigm it’s better for everyone to move house than for everyone to stay put. I would argue the former is wasteful and stressful whereas the latter would be ideal. Encouraging yet more money creation via the housing market is only going to fuel house price inflation further. This leads to my second point

2. The policies are focussed on new build homes. This is, presumably, as it will place money with home builders and create jobs. This raises so many questions

  • this is not a way to a sustainably economy. Surely it is clear that we can’t just keep building more and more houses or are we proposing knocking down old ones to build new. Completely nuts
  • building new houses suggests we don’t have enough. Again the flawed view that house prices are increasing due to supply and demand (i.e. too few houses) rather than because something like 90% of all bank lending (i.e. new money creation) has been pumped in to housing.  If there was this level of shortage surely we’d see millions sleeping on the streets.

3. The government plans to extend a loan of 20% to help those that can “afford” the repayments but don’t have the deposit to get a home. So, the government is encouraging people who can’t afford a home (if they don’t have the deposit by definition they can’t afford it) to take on a massive debt at a time of historically low interest rates. Sounds to me like they’re aiming to get people bankrupt in a few years

4. Even worse the government will then act as guarantor for these loans. Did this government mis the sub-prime crisis. This is what is called “Moral Hazard” – if the banks know the government will cough up why should they worry about the ability of the borrower to repay. This merely encourages bad lending and yet again puts the banks in a position of gaining on the upside but not losing on the down. A very similar moral hazard exists due to the government insuring £85,000 of deposits since it means that depositors feel no inclination to take an interest in the health and lending habits of the banks. It also means the banks know they will be bailed out as it almost certainly be cheaper to keep them afloat than pay out on this insurance. This sort of government  guarantee should be stopped.

It’s important to appreciate that money is created out of debt. So for the national debt to be reduced without reducing the money supply then some new money needs to be created. Perhaps this is why the government is encouraging more personal debt. The system needs to change.

I focussed on housing here but there are other pieces that caught my attention – scrapping fuel duty and a new tax regime to promote early investment in shale gas. Both these are terrible for the environment. It just confirms that when economic conditions get tough one of the first things to sacrifice is the stuff aimed at saving out planet. This is the ultimate in short-termism and the most worrying aspect given how rocky I reckon the economy will be during the coming decades

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