The New Road To Serfdom

[Wad]

Apologies if this has bene posted before but I just came across a wonderful article by Michael Hudson on the US real estate boom , how it got going, who benefited and what the terrible consequences will be.

It was published I think in Harpers Magazine in May 2006 so very precient and timely as it preceeded the now common fron page stories on the US housing market bust. Contains a lot of sound easy to understand economics. Just insert UK or Spain or Ireland wherever you see US and it explains what we are seeing now.

Download here:

http://www.shloky.com/files/housing%20boom.pdf

I liked this summary:

Most members of the rentier class are very rich. One might like to join that class. And so our paradox (seemingly) is resolved. With the real estate boom, tbe great mass of Americans can take on colossal debt today and realize colossal capital gains—and the concomitant rentier life of leisure—tomorrow. If you have the wherewithal to fill out a mortgage application, then you need never work again. What could be more inviting—or, for that matter, more egalitarian?

That's the pitch, anyway. The reality is that, altbough home ownership may be a wise choice for many people, this particular real estate bubble has been carefully engineered to lure home buyers into circumstances detrimental to their own best interests. The bait is easy money. The trap is a modern equivalent to peonage, a lifetime spent working to pay off debt on an asset of rapidly dwindling value. Most everyone involved in the real estate bubble thus far has made at

least a few dollars. But that is about to change. The bubble will burst, and wben it does, the people who thought they would be living the easy life of a landlord will soon find that what tbey really signed up for was the hard servitude of debt serfdom.

[crashmonitor]

Yep trouble is when you have got the poor onto the base of the pyramid who is left to form the next layer of the get rich scheme.Perhaps there are enough tramps in the US or homeless shoe shine boys to keep the thing going.

[Peter & The Wolf]

Yep trouble is when you have got the poor onto the base of the pyramid who is left to form the next layer of the get rich scheme.Perhaps there are enough tramps in the US or homeless shoe shine boys to keep the thing going.

Tramps....or professional, insightful investors like this chap.

Perhaps someone should have a word in his "shell-like"

http://www.streetwisepublications.co.uk/fo...p?TOPIC_ID=4896

Quote:

"Corby at the moment is a "hot spot". Property prices here are going up week by week, this is because the council has big plans for the area, there is very little unemployment, there are lots of foreign workers here and therefore the rental market is strong. The figures just about "add up", rent just about covers expenses, and yields are about 5%, there will be little income to take but hopefully capital appreciation will be strong.

There is a "feeding frenzy" at the moment and estate agents have told me that some BTL buyers are putting in offers without actually seeing the property. Somebody I know has bought 5 properties in the last month alone. All a bit crazy really!

However, I work in Corby and know the area reasonably well and have decided this is where I am going to start my property investing. There are some bad areas in Corby where I personally would not be interested in investing my money, I have seen lots of properties, some pretty bad, but I have now put in offers on 3 and hopefully 2 will be completed soon.

I am willing to meet with anybody interested in Corby and explain which areas I will not touch and the ones I will, I will not charge you anything, it will only cost you a drink, or, if you are feeling particularly generous, you can buy me lunch, hopefully this will be a good way to meet other members of this forum as well."

[Catch22]

New Road To Serfdom.

Excellent title for a link to an excellent article.

Overbought markets are marked at their peak when the lack of affordability stalls the engine that has driven the market ever higher. And when it stalls, the loss of that upward momentum reverses into a downward momentum.

Like the man said most people will forgo all discretionary spending to keep the roof over their heads, thus the economy starts to slide into recession, as all surplus money is hoovered up in interest payments on mortgages on a declining asset value. Its a Catch22 scenario, the weak Debt Slaves are slaughtered by way of mortgage repossessions, leaving the stronger Debt Slaves to work their butt to the bone to service the debt.

Rubbish I hear the Bulls say, the government know they can not afford to let that happen, so they will inflate their way out of trouble. HELLO, inflating your way out of trouble is a one trick pony, if it works well and good, but we just used that trick up getting where we are today.

For those who believe more of the same that caused the problem in the first place, abundant low cost loans can get us out of the problem. They need look no further than the Japanese experience, over 15 years of declining land and property values against a backdrop of a ZERO or near zero rate bank rate. And Japan's a country with an excellent export record.

We on the other hand have record imports that our ports of entry are struggling to accommodate. [ source BBC Breakfast time News Report] All fuelled on a rising mountain of debt, propped up by inflated house prices that many economists consider to be 50% overvalued. Some would consider it to be the biggest Pyramid Scheme of all time, only time will tell I suppose.

Place your bets ladies and gentlemen, place your bets...................................no more bets please the wheel is in motion

Edited April 26, 2007 by Catch22