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Bank created credit is a force outside of market forces which distorts the markets. With an infinite supply of money and a shortage of houses, the sky's the limit on house prices. The only thing holding back the cost of housing is the ability of people to work hard enough to service the loan on a property. Extra hours at work, two or three jobs, mini-cabbing in the evening, renting a room or two out, friends getting together to buy a hime, etc, but all this does was raise the price of homes even more. The bankers made a fortune, and so did the landlords, while Britain was set to work. The One Percent turned Britain into a powerhouse work-house with everyone going 24/7. This is the protestant conservative work ethic where no one owes you a living. A neoliberal dream. In the 1950's
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Bank created credit is a force outside of market forces which distorts the markets. With an infinite supply of money and a shortage of houses, the sky's the limit on house prices. The only thing holding back the cost of housing is the ability of people to work hard enough to service the loan on a property. Extra hours at work, two or three jobs, mini-cabbing in the evening, renting a room or two out, friends getting together to buy a hime, etc, but all this does was raise the price of homes even more. The bankers made a fortune, and so did the landlords, while Britain was set to work. The One Percent turned Britain into a powerhouse work-house with everyone going 24/7. This is the protestant conservative work ethic where no one owes you a living. A neoliberal dream. In the 1950's
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Bank created credit is a force outside of market forces which distorts the markets. With an infinite supply of money and a shortage of houses, the sky's the limit on house prices. The only thing holding back the cost of housing is the ability of people to work hard enough to service the loan on a property. Extra hours at work, two or three jobs, mini-cabbing in the evening, renting a room or two out, friends getting together to buy a hime, etc, but all this does was raise the price of homes even more.
The bankers made a fortune, and so did the landlords, while Britain was set to work. The One Percent turned Britain into a powerhouse work-house with everyone going 24/7. This is the protestant conservative work ethic where no one owes you a living. A neoliberal dream.
In the 1950's people thought machines and technology were going to bring about the leisure society where many of us would opt for doing some voluntary work for the benefit of society, but the opposite has happened. With the whole world going 24/7, and the planet's resources fast being used up, a few billionaires are on their way to becoming trillionaires. And one way they did it, was to set us to work by giving us easy bank credit and house price inflation.
But the people were fooled when they thought they were actually getting richer as their houses raised in value, because the quality of their lives were greatly diminished when life became all work.
Money creation, bank lending and house prices
When property prices rise faster than incomes, it becomes harder to buy a home. Mortgage loans bridge this gap, allowing households to access home ownership without having to save for many years. But there is a side-effect. Banks create new money in the act of lending. When a bank makes a loan, it creates both an asset (the loan) and a liability upon itself in the form of a new deposit in the bank account of the borrower. No money is borrowed from elsewhere in the economy. The main limit on bank money creation is the bank’s own confidence that the loan will be repaid.
If mortgage lending supports the building of new homes, this new money can be absorbed into the economy. However, in most cases mortgage finance enables people to buy existing property on existing land. As households, supported by banks, compete to purchase, the result is increasing land and house prices. Higher prices lead to more demand for mortgage credit, which further pumps up prices, and so on.
This feedback cycle runs against standard economic theory where an increase in the supply of goods, all else being equal, should eventually lead to a fall in prices. An ‘equilibrium’ price will be reached at the point when the quantity of goods supplied exactly matches the demand for them. But with bank credit and land, we have two phenomena that are quite unlike standard commodities. Bank credit is highly elastic and essentially infinite; in contrast land, as discussed in the preceding chapter, is inherently inelastic due to its scarcity.
The chart below shows real house prices (adjusted for inflation) and mortgage credit as a proportion of GDP in advanced economies since 1870. Up until 1960, there was little change in house prices despite rising populations and incomes. Then, from the 1960s to the 1990s, house prices increased by around 65%, supported by the reduction in taxes on property and the withdrawal of state provision of affordable housing and gradual expansion of mortgage credit. But even more remarkable has been the change in the last 20 years, when real house prices have increased by 50%. During the same period, real average incomes have flatlined — but mortgage credit has risen exponentially. There is a clear correlation between the two variables since the 1990s.
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