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Why Everything You Know About Economics Is Wrong

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I am indebted to the FT for the link to an academic paper below which appears in their article about gold. This is the first time I have seen in print something that has perplexed me since business school way back in the early 80s. I have always thought that economics was a load of bunk and that nearly all economists are nothing more than politicians trying to hide behind pseudo-science to back up their (often crazy) ideas. Marx, Keynes and Friedman all talked a load of guff and missed the point that people and the markets they create react according to human nature not to rational monetary logic. Buying a house for 20% over value makes perfect sense if you think someone else is more stupid than you and will pay 50% over value for it next year.

Thatcher lied and told us she was combating inflation as houses soared in price in the 80s. Hiding behind the sham of monetarism and its bed fellow "free market globalisation", in truth an orgy of deregulation and giving huge sums to the rich. Many people fell for it and still do. The "Lawson Boom" of easy credit was the forerunner of the Blair housing boom orchestrated by Brown and every bit as dishonest and destructive (more destructive IMO). The bankers, high as a kite on fraudulent profits could not believe how thick Brown was and how gullible. The right wing media swung into action and played every card in the deregulation and free market book. The end result we now confront is the near apocalyptic collapse of capitalism and the virtual bankruptcy of the western world.

Why did this happen? Its easy to choose politics but it would be wrong. The global capitalist system eats politicians for breakfast. The "markets" trade many multiples of global GDP each year. The bankers are still rich and the young still cannot buy a house. The world is now trying the failed policy of Hoover and the massive cutting of budgets whilst at the same time trying the failed policies of Keynes and increasing the money supply. No-one can agree about anything other than that where we are going is uncharted territory.

The free market loons believe that QE is expanding the money supply and so causing inflation. The fact that Japan has done this for 20 years and has falling prices does not deter this lunatic viewpoint. The rise in consumer prices encourages many to think inflation, or even hyperinflation is just around the corner. Many who think that (on this forum at least) also think that house prices will collapse. At the same time. Well that mystifies me if I'm honest. A loaf of bread goes up 5p and your new house goes down £12,000. I think I can cope with the increase on the bread thanks :)

This paper discusses the issues raised by these price changes and gives me reassurance that economics is, by and large, a waste of time. What matters is what you personally want or need to buy and how much it costs. The cost is relative to what you earn and the other things you buy and any interest you might pay on what you borrow or lend. If like me you think house prices are about to crash you are saying we face deflation - a deflationary crash of 1930s proportions. That is why the money supply is being hiked by the Fed. Its what they think too. They just don't like to admit it. Of course if you are rich beyond my imagination (like Cameron or Clegg) the price of a semi in Surbiton is of no interest to you. You might favour a different approach. To hell with all of them - just enjoy the ride and don't try to make too much sense of it. remember other people have a different viewpoint because their wealth is in another asset or commodity - as is their expenditure. Look out for yourselves fellow HPCers, don't listen to the crowd (or me for that matter :D)

http://www.dnb.nl/binaries/sr065_tcm46-146842.pdf

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Calm yourself tubbs. I used to blame the Rothschildists and the YKWs until i remembered they had exactly the same thing in Japan, south america and elsewhere. How much control do they have there? None, they have their own bloodlines to mess them up. Its no more Thatcher than it is someone somewhere else in the world sometime else in history.

Its all our faults. Brown was an idiot because we demanded an idiot. Conservatives would have lined up an idiot of similarly monumental proportions also if need be. Theyre two a penny in politics, afterall.

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'If like me you think house prices are about to crash you are saying we face deflation - a deflationary crash of 1930s proportions.'

Can you please explain as I don't follow.

Why must we face deflation if one area of the market, namely houses are overpriced and can't be afforded at their current level?

Why can't we have price falls (deflation) in some things and price increases (inflation) in others?

If the price of basic raw materials are being pushed higher around the globe and we import these items either in their basic form; or after they have been manufactured into something else, then aren't we importing inflation as a result which will be made worse by our falling currency?

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....

Why can't we have price falls (deflation) in some things and price increases (inflation) in others?

...

You can, but the issue is what is the overall effect. If the average house price falls from 220K to 120 K it outweighs the rise in (for example) groceries by 10% (assuming you spend say 90 quid a week on food). Overall the amount of money you need to live on has massively gone down -deflation.

Economists believe inflation or deflation is measured by the increase or decrease of money supply. That's why QE is seen as inflation, nay hyperinflation, by some. However, the money supply is falling because banks and other lenders are writing off bad debt. Far bigger sums than the QE.

Now to obfuscate the issue some people want you to think QE is so-called "base money" - used by banks to print more money - or debt if you like. But it isn't its asset purchase by the state. The assets are debt, so new government debt is replacing old bank debt, debt that is worthless or at least of dubious value. QE puts us back where we were before the crash.

The government measures "inflation" (whatever that is) using an index of prices. The bank adjusts IR based on that index. Therefore the goods or services selected by the compiler of the index will determine "inflation". My point is that most ordinary folk like me would regard our residential property as the single biggest expense of our lives. The increase or decrease of this item is good or bad depending upon where you are in life. If you are 20 and looking to buy you want prices to come down. If you are 60 and want to downsize a paid-for property you want prices to go up.

Everyone is looking at the same thing but what you see depends on who you are. Economics is bunk. All the attempts to "manage" the economy are wishful thinking.

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I am indebted to the FT for the link to an academic paper below which appears in their article about gold. This is the first time I have seen in print something that has perplexed me since business school way back in the early 80s. I have always thought that economics was a load of bunk and that nearly all economists are nothing more than politicians trying to hide behind pseudo-science to back up their (often crazy) ideas. Marx, Keynes and Friedman all talked a load of guff and missed the point that people and the markets they create react according to human nature not to rational monetary logic. Buying a house for 20% over value makes perfect sense if you think someone else is more stupid than you and will pay 50% over value for it next year.

Thatcher lied and told us she was combating inflation as houses soared in price in the 80s. Hiding behind the sham of monetarism and its bed fellow "free market globalisation", in truth an orgy of deregulation and giving huge sums to the rich. Many people fell for it and still do. The "Lawson Boom" of easy credit was the forerunner of the Blair housing boom orchestrated by Brown and every bit as dishonest and destructive (more destructive IMO). The bankers, high as a kite on fraudulent profits could not believe how thick Brown was and how gullible. The right wing media swung into action and played every card in the deregulation and free market book. The end result we now confront is the near apocalyptic collapse of capitalism and the virtual bankruptcy of the western world.

Why did this happen? Its easy to choose politics but it would be wrong. The global capitalist system eats politicians for breakfast. The "markets" trade many multiples of global GDP each year. The bankers are still rich and the young still cannot buy a house. The world is now trying the failed policy of Hoover and the massive cutting of budgets whilst at the same time trying the failed policies of Keynes and increasing the money supply. No-one can agree about anything other than that where we are going is uncharted territory.

The free market loons believe that QE is expanding the money supply and so causing inflation. The fact that Japan has done this for 20 years and has falling prices does not deter this lunatic viewpoint. The rise in consumer prices encourages many to think inflation, or even hyperinflation is just around the corner. Many who think that (on this forum at least) also think that house prices will collapse. At the same time. Well that mystifies me if I'm honest. A loaf of bread goes up 5p and your new house goes down £12,000. I think I can cope with the increase on the bread thanks :)

This paper discusses the issues raised by these price changes and gives me reassurance that economics is, by and large, a waste of time. What matters is what you personally want or need to buy and how much it costs. The cost is relative to what you earn and the other things you buy and any interest you might pay on what you borrow or lend. If like me you think house prices are about to crash you are saying we face deflation - a deflationary crash of 1930s proportions. That is why the money supply is being hiked by the Fed. Its what they think too. They just don't like to admit it. Of course if you are rich beyond my imagination (like Cameron or Clegg) the price of a semi in Surbiton is of no interest to you. You might favour a different approach. To hell with all of them - just enjoy the ride and don't try to make too much sense of it. remember other people have a different viewpoint because their wealth is in another asset or commodity - as is their expenditure. Look out for yourselves fellow HPCers, don't listen to the crowd (or me for that matter :D)

http://www.dnb.nl/binaries/sr065_tcm46-146842.pdf

fk thats a hard post to read. Is your return button broken?

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I am indebted to the FT for the link to an academic paper below which appears in their article about gold. This is the first time I have seen in print something that has perplexed me since business school way back in the early 80s. I have always thought that economics was a load of bunk and that nearly all economists are nothing more than politicians trying to hide behind pseudo-science to back up their (often crazy) ideas. Marx, Keynes and Friedman all talked a load of guff and missed the point that people and the markets they create react according to human nature not to rational monetary logic. http://www.dnb.nl/binaries/sr065_tcm46-146842.pdf

You just put into words some of what I felt but couldn`t decipher in my mind.

It really is all about the madness of crowds, even down to one crowd believing they can see through all the smoke and mirrors. Basically we`re on our own folks, in our own little bubbles....... :)

Much of what Tamara Lempicka keeps saying....there are no patterns or rules really.

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Of course if you are rich beyond my imagination (like Cameron or Clegg) the price of a semi in Surbiton is of no interest to you.

Which is exactly why HPC in surbiton is a sure thing - the only ones able to put up Surbiton Semi money aren't interested in doing so :)

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The free market loons believe that QE is expanding the money supply and so causing inflation. The fact that Japan has done this for 20 years and has falling prices does not deter this lunatic viewpoint.

Total ********.

They QE'd and kept interest rates low to prop up their bubble. In doing so they made local investment unappetising so the money that was taken up by Japanese businesses was shoved into investment in China and the rest of Asia. Moreover, even more of the cheap money was borrowed through interest rate arbitrage to stuff into other markets around the world - heavily into property causing inflation in anglo saxon countries in particular which then accelerated when the lunatic fringe of the FED, BOE and ECB decided to do the same.

Just because under Japan's particular circumstances didn't give rise to immediate inflation in their cost of living at the time does not mean that QE as a polciy is def-defacto inflation inducing - it is.

Edited by OnlyMe

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I am indebted to the FT for the link to an academic paper below which appears in their article about gold. This is the first time I have seen in print something that has perplexed me since business school way back in the early 80s. I have always thought that economics was a load of bunk and that nearly all economists are nothing more than politicians trying to hide behind pseudo-science to back up their (often crazy) ideas.

Read George Ormerod's seminal work "Why We Don't Need Economics".

Like wine, there are economists and economists.

Unfortunately, politicians since circa 1960 have abused economic theory and omitted to apply ALL of any one theory: they simply pick out the bits that suit to support asinine policies in their cause of political expediency; and their concurrent attempts to square the fiscal circle.

Marx, Keynes and Friedman all talked a load of guff and missed the point that people and the markets they create react according to human nature not to rational monetary logic. Buying a house for 20% over value makes perfect sense if you think someone else is more stupid than you and will pay 50% over value for it next year.

The World at the time of Marx was markedly different from the World of today: same with Keynes.

After Bretton Woods and the IMF, the strategies were originally pretty sound: for the global trade and financial circumstances of the time. What went awry was when currencies became fully floating, after Managed Flexibility failed and the resulting fiat currencies were a useful tool for profligate politicians to abuse.

Thatcher lied ..................
Never?

:D

....and told us she was combating inflation as houses soared in price in the 80s. Hiding behind the sham of monetarism and its bed fellow "free market globalisation", in truth an orgy of deregulation and giving huge sums to the rich. Many people fell for it and still do. The "Lawson Boom" of easy credit was the forerunner of the Blair housing boom orchestrated by Brown and every bit as dishonest and destructive (more destructive IMO). The bankers, high as a kite on fraudulent profits could not believe how thick Brown was and how gullible. The right wing media swung into action and played every card in the deregulation and free market book. The end result we now confront is the near apocalyptic collapse of capitalism and the virtual bankruptcy of the western world.

Why did this happen? Its easy to choose politics but it would be wrong. The global capitalist system eats politicians for breakfast.

Wow: number of sweeping generalisations here!

All Thatcher-Lawson did was to emulate Heath-Barber: they created a synthetic boom , on the back of slack regulation and loose money. Blair-Brown did precisely the same: only this time around it was turbocharged.

The late "Hard" Eddy George admitted to the Select Committee tasked with investigating how successful B of E independence had been (Big larf) that the MPC had slackened off all controls to stave off an imminent recession: and how they fully realised this might "Cause a consumer debt crisis and an uncontrollable house price boom". March 2007.

See here:

It is in Hansard: you can read it.

Government had the weapons to control much of the problem: repeal of Glass-Steagall in the US was the beginning of the problem.

Vesting control and regulation authority in the FSA and taking this away from B of E was Britain's Achille's Heel.

At least, in the early 1970s Heath-Barber fiasco, the B of E invoked The Corset (Special Deposits) to reign in bank's excessive insane borrowing.

The "markets" trade many multiples of global GDP each year. The bankers are still rich and the young still cannot buy a house. The world is now trying the failed policy of Hoover and the massive cutting of budgets whilst at the same time trying the failed policies of Keynes and increasing the money supply. No-one can agree about anything other than that where we are going is uncharted territory.

The free market loons believe that QE is expanding the money supply and so causing inflation. The fact that Japan has done this for 20 years and has falling prices does not deter this lunatic viewpoint. The rise in consumer prices encourages many to think inflation, or even hyperinflation is just around the corner. Many who think that (on this forum at least) also think that house prices will collapse. At the same time. Well that mystifies me if I'm honest. A loaf of bread goes up 5p and your new house goes down £12,000. I think I can cope with the increase on the bread thanks :)

This paper discusses the issues raised by these price changes and gives me reassurance that economics is, by and large, a waste of time. What matters is what you personally want or need to buy and how much it costs. The cost is relative to what you earn and the other things you buy and any interest you might pay on what you borrow or lend. If like me you think house prices are about to crash you are saying we face deflation - a deflationary crash of 1930s proportions. That is why the money supply is being hiked by the Fed. Its what they think too. They just don't like to admit it. Of course if you are rich beyond my imagination (like Cameron or Clegg) the price of a semi in Surbiton is of no interest to you. You might favour a different approach. To hell with all of them - just enjoy the ride and don't try to make too much sense of it. remember other people have a different viewpoint because their wealth is in another asset or commodity - as is their expenditure. Look out for yourselves fellow HPCers, don't listen to the crowd (or me for that matter :D)

http://www.dnb.nl/binaries/sr065_tcm46-146842.pdf

The UK housing market is wholly dysfunctional. By 2003 ONS in their annual survey of Britain's total capital wealth, reported that residential house prices represented 66% of the whole capital value of GB.

Once house prices moved out of that essential value benchmark of circa 3.5 X Gross Income, then the rest was bound to happen.

This was only enabled as lenders criteria, as a result of competing with each other and what's more, banks intent on destroying building societies, after Thatcher removed such friendly societies preferences: which led to insane Income Multiples: Lunatic LTVs: ridiculous tenors (Lengths of mortgage) and all aided an abetted by the cheapest money for circa 55 years.

Furthermore, since GB plc hadn't been throwing off fresh new capital wealth for reinvestment, this last boom had to be financed by importing capital from the global interbank system: which is generally short term. So banks intent on mad scrambles for expansion, bundled the debt and sold it on as securitised assets.

Which caused (As the capital was repatriated) a Funding Overhang, as Peston so accurately described it.

The UK housing market cannot and will not stabilise until one of two metrics change:

1. Instead of Britain's whole industrial, public, private infrastructure being built on a tiny percentage of developed and what is perceived as developable land (Green, White and Brown Field), larger swathes of presently privately owned land, (mostly still in the same privileged ownership since the Norman Invasion and the Industrial Revolution) is opened up for development.

Old economic law of Supply and Demand: hundreds of thousands of new houses: prices fall.

2. Wages and Salaries catch up and house prices stagnate, so the immutable ratio of X 3.5 is restored.

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.....

The UK housing market cannot and will not stabilise until one of two metrics change:

1. Instead of Britain's whole industrial, public, private infrastructure being built on a tiny percentage of developed and what is perceived as developable land (Green, White and Brown Field), larger swathes of presently privately owned land, (mostly still in the same privileged ownership since the Norman Invasion and the Industrial Revolution) is opened up for development.

Old economic law of Supply and Demand: hundreds of thousands of new houses: prices fall.

2. Wages and Salaries catch up and house prices stagnate, so the immutable ratio of X 3.5 is restored.

Yes, I think you're nearly there. But what about option 3?

3. House prices fall catastrophically to return to x3.5 of the new - lower - average wage.

IMHO it will be either 2 or 3. 2 if we have mass strikes and they are effective (and allowed). Failing that 3. 1 is a pipe dream.

It is the side effects of the HPC that worry me....

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It is my own view that government, heavily lobbied by the financial sector will fight tooth and claw to prevent the house market melting down: since it it did, then a majority of Bank's capital would be lost for all time.

Let's play suppose...................

The average salary/wage is (alleged!) to be £ 26K: The (Alleged) average house price is around £ 246,387.

Thus either: Wages/Salaries must escalate to £ 70,396 ( :lol: ) or average house price must tumble to £ 91,000 ( :lol::lol: ).

If we then use ONS's last metric for total residential property value, then the potential capital loss would be (Conservative) in region of £5.55 trillion, suddenly being worth only £2.02 Trillion: or a loss of £3.53 trillion in capital value.

This is what happens when one navigates oneself up crap creek lacking any form of paddle.

Unfortunately for both government and the banks, eventually (And soon) base rates are going to rise: probably driven by LIBOR on the back of the Sovereign Risk Bond market and the price Britain will have to pay for its ongoing public debt financing.

Its fine in theory to keep base at its present idiot level: doesn't mean one can borrow money at that rate + a point or two does it.

All it's actually doing is to screw the savers that traditionally financed house purchase mortgages before the banks et al got too clever.

A quick look at Britain's Balance of Trade metrics shows deficit: year after year after year: which has to be financed: somehow.

And despite all the self-congratulatory back slapping by such as the CBI about exports, Britain is a nation dependent upon imports: and most "Exports" are re-manufactured imports.

Thus eventually, government and the B of E will be compelled to defend the pound sterling.

By raising interest rates, to compensate sterling investors for their increased Capital Risk Exposure.

Two or three whole points on base rate will be enough to meltdown a large proportion of silly mortgage obligations: together with the raft of extra taxes, price escalation of almost everything and sheer exploitative venality of energy providers and oil companies.

Fun, innit!

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....Fun, innit!

I have to say I agree with your analysis. I'm not sure it will be much fun though :D

For me the key question still is whether or not people will put up with it. The Brits might for a while but will the Irish, or will all the working Irish leave to find a job in County Kilburn? What happens when everyone accepts their country is busted and leave? Too many Brits to do that, but Greece or Eire could soon be "empty" :)

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  • 144 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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