We are told by economists and bankers that boom & bust is about as controllable as the weather. But maybe the bankers at least have a reason for wanting us to believe this.
A free market economy is all about a seller being able to sell a product at the highest price they can get a buyer to pay. This wouldn't be such a problem if we all paid out only our own money. But the way things are today, some of us can borrow some money, some can't borrow any, and some involved in what we shall call capitalist business can borrow a phenomenal amount from the banks. When I say phenomenal amount I mean billions of dollars, euros or pounds.
This is where it may be difficult to see why boom and bust is some kind of uncontrollable phenomenon. The reason being that the billions being lent by the banks (when they are lending) are simply funding the boom itself. Property businesses (via shares and private equity) are being paid for with borrowed money.
Why are these people borrowing money to buy these properties and businesses?
Because they can not afford to pay for them otherwise!
One of the biggest factors as most people will be aware shortly after the crisis surfaced in 2008, of the price a high value item can be sold for today is the amount of money a bank will lend to buy it today.
In the case of a house purchase, a bank may agree to lend the money to buy a house partly because in a years time it expects the house to have risen in value. But a major part of the reason why it might be valued at a higher price in the future will have to be that the banks will lend more money to buy it. As long as bankers keep increasing the amount of money to buy properties and businesses they can create the criteria for a 'boom'.
But this makes a nonsense out of the 'science of economics'. If the banks suddenly all started lending money, and then property prices began to rise and businesses began to increase in value (as a result of increased activity in the private equity buy out business) would that mean we are out of the recession and straight into a boom?... It seems just a little bit too easy doesn't it?
The banks would be happy as they would be making lots of profit from the increase in business. Investment representatives would probably be telling us through the media that job prospects are good and there would be jobs created.
An illusion that the recession is over could therefore be created quite easily, but would this really end the recession?
No. The reason is that the only sector which will have really improved is the financial sector. The apparent boom hasn't materialised because we have more money as we are out of recession, but is merely because the banks have started lending more money.
In this situation, the construction industry will receive a boost. But part of this, in fact the majority will be down to speculators or property tycoons. At the moment (2011), landlord s are buying more properties than all genuine home buyers combined in the U.K. Due to 'safety nets' associated with landlords as opposed to the rest of us this is likely to continue.
So basically when the banks do start lending again, it is unlikely to be because of the end of a recession. It will be an illusion that will be created, which would be fine if we all benefited, but only a few will benefit. The property tycoons who they will happily lend money to, to buy more properties and the banks themselves who will make profits from lending. The losers will be the tenants (who have been increasing in no. without much media notification since 2003) who will have to pay inflated home costs, and also tax payers who will be paying the rent of the unemployed and retired. Costs to businesses will rise due to our increased housing costs and taxes due to welfare costs. Those who can afford to buy their own homes will pay more and maybe work longer hours and make other sacrifices to pay for them along with paying the increased taxes.
The question has to be asked. How much of the last boom was an illusion created by the banks, and how much of this so called boom was representing an improvement in all our lives. Many would look to statistics such as GDP to back up the fact that a boom has occurred, but each time stocks and shares change hands, each time money is lent to business and property tycoons for billions of dollars for their investments (which many will have a negligible actual product if any at all- See other articles in Anti-Crisis), and all kinds of other financial movements were taking place during the last "boom" which would have increased the GDP in the U.K., the U.S. and any where else big in the finance industry. You have to understand that the movement of money does not necessary mean there will be a product of that transaction. And hence this is one of the major problems of economics today and the reason for 'Anti-Crisis Economics'.
A free market economy is all about a seller being able to sell a product at the highest price they can get a buyer to pay. This wouldn't be such a problem if we all paid out only our own money. But the way things are today, some of us can borrow some money, some can't borrow any, and some involved in what we shall call capitalist business can borrow a phenomenal amount from the banks. When I say phenomenal amount I mean billions of dollars, euros or pounds.
This is where it may be difficult to see why boom and bust is some kind of uncontrollable phenomenon. The reason being that the billions being lent by the banks (when they are lending) are simply funding the boom itself. Property businesses (via shares and private equity) are being paid for with borrowed money.
Why are these people borrowing money to buy these properties and businesses?
Because they can not afford to pay for them otherwise!
One of the biggest factors as most people will be aware shortly after the crisis surfaced in 2008, of the price a high value item can be sold for today is the amount of money a bank will lend to buy it today.
In the case of a house purchase, a bank may agree to lend the money to buy a house partly because in a years time it expects the house to have risen in value. But a major part of the reason why it might be valued at a higher price in the future will have to be that the banks will lend more money to buy it. As long as bankers keep increasing the amount of money to buy properties and businesses they can create the criteria for a 'boom'.
But this makes a nonsense out of the 'science of economics'. If the banks suddenly all started lending money, and then property prices began to rise and businesses began to increase in value (as a result of increased activity in the private equity buy out business) would that mean we are out of the recession and straight into a boom?... It seems just a little bit too easy doesn't it?
The banks would be happy as they would be making lots of profit from the increase in business. Investment representatives would probably be telling us through the media that job prospects are good and there would be jobs created.
An illusion that the recession is over could therefore be created quite easily, but would this really end the recession?
No. The reason is that the only sector which will have really improved is the financial sector. The apparent boom hasn't materialised because we have more money as we are out of recession, but is merely because the banks have started lending more money.
In this situation, the construction industry will receive a boost. But part of this, in fact the majority will be down to speculators or property tycoons. At the moment (2011), landlord s are buying more properties than all genuine home buyers combined in the U.K. Due to 'safety nets' associated with landlords as opposed to the rest of us this is likely to continue.
So basically when the banks do start lending again, it is unlikely to be because of the end of a recession. It will be an illusion that will be created, which would be fine if we all benefited, but only a few will benefit. The property tycoons who they will happily lend money to, to buy more properties and the banks themselves who will make profits from lending. The losers will be the tenants (who have been increasing in no. without much media notification since 2003) who will have to pay inflated home costs, and also tax payers who will be paying the rent of the unemployed and retired. Costs to businesses will rise due to our increased housing costs and taxes due to welfare costs. Those who can afford to buy their own homes will pay more and maybe work longer hours and make other sacrifices to pay for them along with paying the increased taxes.
The question has to be asked. How much of the last boom was an illusion created by the banks, and how much of this so called boom was representing an improvement in all our lives. Many would look to statistics such as GDP to back up the fact that a boom has occurred, but each time stocks and shares change hands, each time money is lent to business and property tycoons for billions of dollars for their investments (which many will have a negligible actual product if any at all- See other articles in Anti-Crisis), and all kinds of other financial movements were taking place during the last "boom" which would have increased the GDP in the U.K., the U.S. and any where else big in the finance industry. You have to understand that the movement of money does not necessary mean there will be a product of that transaction. And hence this is one of the major problems of economics today and the reason for 'Anti-Crisis Economics'.
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