torsdag 3 januari 2008

Billions will be wiped off the nation's wealth

Accountants Grant Thornton predict that house prices in 2008 could end 10% below the peak they reached in August last year. According to a report in the Daily Mail, "A fall of this level would wipe about £400 billion off the nation's wealth held in bricks and mortar."

That is precisely wrong. Bricks and mortar go down in value all the time due to the effects of time, weather, and wear and tear. The peak referred to was a peak in land values, not the value of bricks and mortar. And it is a paper value. If it falls, nothing tangible has gone anywhere. Land can be exchanged for wealth, but is not itself wealth, and a failure to understand this is the reason why the problem of periodic booms and slumps is seemingly intractable.

This fall in values will indeed cause big problems for all sorts of people and institutions, in fact it will cause trouble for everyone, but false descriptions of the situation make it impossible to deal with and prevent recurrences.

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