onsdag 9 april 2008

Speaking with forked tongues

Politicians, journalists and other experts have go on for the last dozen years about the need for “affordable housing”; in other words, they think housing is too expensive. Now there is another need – to support house prices to prevent a collapse. Often, the same individuals are arguing for both things at the same time. Obviously this just isn’t possible, so why do they do it?

But why is there this anxiety to keep house prices up? Now, the talk in the newspapers is about the need to drop interest rates in order to prop up the present inflated house prices – really, the price of the land that houses stand on. To put it more bluntly, they do not want to see the present land price bubble deflating. I thought the terms of reference of the Monetary Policy Committee were to contain inflation within set limits, not to keep speculative bubbles pumped up, but the economy, we are told, depends on it? How so? The house price bubble has helped to boost demand by enabling people to run up debts by borrowing against the equity in their houses. In reality, it is the equity in the land their houses stand on, but in any case it is, or was, a bubble value created by the willingness of lenders to hand out money to people without asking too many questions. Isn’t there something fundamentally wrong with an economy which relies on ever-increasing bubble values to survive?

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