In reply to Martin McKenna - Rockfax:
> You see, that philosophy grinds with me though. Lots of people acknowledge there is a bubble and when the whole thing comes crashing down there will be winners and losers. Stuff like this just leads to turmoil, instability and I think it promotes imbalance of wealth.
> On a more general note, I just have issues with the whole economic system where people seem to be making money from money in vast quantities on stuff like the stock market and currency trading. I've always thought it was odd that people find it perfectly acceptable that no one can explain how parts of this system work.
> Obviously investing money is a good thing to do, and it's required to promote growth in economies and get things done, but whenever a system is so complex that no one can really understand why it is valued at such a price, I get very uneasy. I'd rather not get involved, stick to my principles and be a little worse off (potentially). Sorry, a bit off topic, it just annoys me slightly!!!
I agree. I mean what is behind the GBP? What is behind our current 'recovery'? It is all just money being sloshed around and very little substantive.
Money is created out of thin air. Somehting like 97% of money is created by commercial banks (not the BoE or the government as many people assume! That money is loaned out by banks - but they can either risk loaning out to small business or for mortgages. If they loan to a small business there is a big risk, and if the gamble fails, then there is just a load of second hand computers and some tools to flog, in a bid to recoup costs. Now if banks loan for mortgages, if the borrower defaults, there is a large asset there for sale. So mortgages are a much safer bet.
This approach is why we have seen a housing bubble brewing. Banks chose the safer option of mortgage lending. But the problem is, although house prices rise, it does nothing for GDP. The amount of 'stuff' we produce is not impacted by rising house prices. Thus we have stagnation. And as commercial banks direct lending, we have a lack of investment in both infrastructure and 'real' things. that create jobs and wealth through innovation.
So we are trapped in a model where salaries are stagnating and house prices are rising. Thus the poor are forced to rent, and are unlikely to own a home or to ever buy. Not just the poor, but our young people/our children.
And with cyclical crashes, the poorest indebted homeowners are cleared out of homeownership and more wealth is consequently concentrated towards the wealthy who can weather the storm and cash in on the price drop.
It is a destructive debt model which I see us trapped in for decades. it won't change because the government has already shown itself willing to mutualise commercial bank debts upon the taxpayer.