“We are obviously all hurt by inflation. Everybody is hurt by inflation. If you really wanted to examine who percentage-wise is hurt the most in their incomes, it is the Wall Street brokers. I mean their incomes have gone down the most.” – Alan Greenspan[i]
Let’s think about the Housing Market as adults and see if we can learn about Austrian economics in the process:
How many times has someone proudly said to you that: “My house has tripled in value over the last 10 years,” or anything similar to that, and then followed up with, “but I can’t move anywhere because all other houses went up in price too.” Or how many times has someone said that: “the Fed can’t raise interest rates because then the market will crash.”
The problem is that we are living in an “impossible time.” The general population is not at a level where they can conceptualize what has happened or how we will get out of this, but that is no different than the economists who are charged with safeguarding the truth in economics. There is hope, because if we can start with basic questions then we can slowly start to see the bigger picture, and eventually the entire mainstream economic apparatus will reveal itself as hollow.
Consider questions such as: What if the Fed didn’t keep rates abnormally low for over a decade, or if they didn’t create $4 Trillion to give to the richest bankers in the world, would house prices still have gone up as much as they have? And why did the Fed create only $4 trillion? If they created $8 trillion instead, then wouldn’t everyone be twice as rich? Or would $8 trillion be absurd, unlike $4 trillion, which is a reasonable and modest sum of money to create out of thin air?
If you’re lucky enough to hear a central banker speak, they will say that Quantitative Easting (QE, i.e. the creation of money out of thin air to give to a very small number of global elites) was a necessary and bold move that staved off calamity. Unfortunately, what this calamity would have been, not one Nobel Prize winner or central banker has ever been able to explain.
If you think more about QE, you might ask how come it doesn’t work in Venezuela or Zimbabwe? Like UBI or any other money printing scheme, if the economic policy is honest, then shouldn’t it be universal? How is it possible that the same economic policy will work for some countries but not work for others? To say “because the US Dollar is the world’s reserve currency” misses the notion that if an economic theory is true, then it should be universal and not work only sometimes, or “only in the long run,” or only for certain countries.
What has been going for many generations is that mainstream economic schools have been advocating inflationism, or the idea that if you increase the money and credit in circulation that a nation will become rich. This has never worked, and Austrian economics has fought against this for over a century but no one able to make a difference has ever listened to this. Keynesian, Chicago-Monetarism, MMT, whatever they call it, they all rely on creating money to “stimulate” the economy, but it’s correctly called inflationism. It dates back throughout history from antiquity, to Marco Polo’s experience in the East, to the Weimer Republic and now to every country in the world. This has affected all facets of asset classes, including the housing market and has created what I refer to as an “impossible time.”
People will say, “the Fed can’t raise rates” because the housing (stock and bond) market will crash. But that is an impossible thing to say. It assumes that a market crash cannot happen while at the same time imply that it was the Fed who causes the boom in the first place. Anyone who says this statement is indirectly acknowledging the Austrian Business Cycle (ABC); by noting that it’s the Fed who can cause the bust, while further thinking will allow one to realize that it was also the Fed who also caused the boom. Or consider it the other way around: if the Fed didn’t cause the boom by creating $4 Trillion and keeping rates low for over a decade, then what caused the boom? We need to go move beyond vague yet still popular statements such “irrational exuberance.”
Someone in a position of authority, or one day “the people” must realize that rates will have to go up and the money printing will have to be curtailed. We must educate ourselves about economics because the ones “in charge” are leading us into disaster. As a society we cannot think that because we are not yet dead that we are immortal; we must look at Venezuela and learn why it went from one of the richest to one of the poorest nations on earth; and we cannot keep living with economic lies that tell us inflation is low, but fail to recognize the unaffordability of housing and associated debt levels.
On twitter I note #EconomicFakery to share instances of mainstream economics using false terms, of which the housing market and related economic statements match the description. The Bank of Canada shares an example of such below:
Housing activity is projected to continue its recovery in 2020, then evolve roughly in line with the underlying fundamentals. With resales having rebounded in 2019, new construction is expected to be the main driver of growth in residential investment over the projection horizon.[ii]
Mainstream economists will never tell you what exactly the “fundamentals” are, they just know that they exists; but the worst thing is that they remain completely clueless about the money supply and interest rate manipulation that has caused the boom in the housing market. Per the quote, the main driver of growth is due to new construction, with no stated reasons as to why construction is expected to rise. This quote is problematic for many reasons but the takeaway is that the general public is not supposed to understand economics; and instead, they should trust the experts who rely on the “fundamentals.”
You’ve most likely seen numerous charts that show debt and housing prices, so I will share an anecdote: In 2007 bought my first detached suburban home for $364,000 just outside of Toronto. A quick search revealed that houses on the same street are currently priced at $1,025,000. Once we understand the money printing and low interest rates that have existed for the last decade it becomes easy to see why this is the case. Consider that if the next decade is anything like the last decade, then the average suburban home will be close to $3 million? Consider that most University graduates cannot buy a detached home as of right now, how much more difficult will it be for them in the future?
What happens when the experts lead us on a path of destruction? At what point will we be forced to stop them, or is it already too late?
[i] Alan Greenspan at a conference on inflation, Washington, D.C. (September 19, 1974). In Report of the Health, Education, and Welfare, Income Security, Social Services Conference on Inflation (1974), pp. 804–5.
[ii] Bank of Canada, Monetary Policy Report January 2020, p.13 https://www.bankofcanada.ca/wp-content/uploads/2020/01/mpr-2020-01-22.pdf