capitalism - Max Keiser

Stacy Summary: This is a great opinion piece from Martin Wolf in the FT, “Why we must halt the land cycle.”

Wolf, despite having seen a 10 fold increase in his property value in the past decades, advocates drastic changes to our Western economies’ addiction to the cycle of property bubbles and the subsequent devastating collapses. The consequences of our property bubble as industrial policy:

First, it makes it necessary for the state to fund itself by taxing effort, ingenuity and foresight. Taxation of labour and capital must lower their supply. Taxation of resources will not have the same result, because supply is given. Such taxes reduce the unearned rewards to owners.

Second, this system creates calamitous political incentives. In a world in which people have borrowed heavily to own a location, they are desperate to enjoy land price rises and, still more, to prevent price falls. Thus we see a bizarre spectacle: newspapers hail upward moves in the price of a place to live – the most basic of all amenities. The beneficiaries are more than land speculators. They are also enthusiastic supporters of efforts to rig the market. Particularly in the UK, they welcome the creation of artificial scarcity of land, via a ludicrously restrictive regime of planning controls. This is the most important way in which wealth is transferred from the unpropertied young to the propertied old. In his new book, David Willetts, the universities minister, emphasises the unfairness of the distribution of wealth across generations.* The rigged land market is the biggest single cause of this calamity.

Third and most important, the opportunity for speculation in land both fuels – and is fuelled by – the credit cycle, which has, yet again destabilised the economy.

As you can see from this Economist article, however, housing bubbles continue to expand thanks to easy money, government policy (as in Australia) and continued ponzi euphoria. The Australian housing bubble, where the Economist reckons house prices are 61% overvalued, seems one destined for the history books. (I’m sure the Economist is being bombarded with hate mail from Canadians and Australians holding onto their fictional bubble gains for dear life).

As those first into this ponzi scheme economics are the active voters of the baby boom generation each about to retire on their house price gains, however, it looks 100% unlikely that anything will change any time soon.

And that’s no doubt why “Gold keeps rising as panicky investors look for security.”

No less exciting, though rather more unsettling, is the real-life drama taking place on the world’s financial markets, where investors have piled into gold on fears that capitalism is about to crumble.

If capitalism is what you call what we’ve got and if a perpetual ponzi scheme is as good as we’ve got gets, then let them eat capitalism crumble.