78% of community bank executives expect the housing market to crash by 2026
businessinsider.com
businessinsider.com
Let's imagine there's 30 families or just maybe 30 people. Let's say there's also 3 people who build houses. Now they keep building and since each of those people needs a house, they are willing to give some of their produce to the builders. Now at some point, all of sudden there's 30 houses built.
If they build another house, what will be the value of this house? As all people already have a house. But this house is identical to all the other houses, shouldn't it still have similar value and shouldn't builders be getting the same? How will builders make anything of value for others to be willing to trade some of their produce?
And actually, you could in a way solve this problem if this village adopted currency of some sort. Builders could instead of asking produce which might expire in few months, ask for money and ask enough money that by building all of those 30 houses, they will be covered for life and never have to build another house.
And if it would happen that builders suddenly lost their capability to work after building 15 houses, what would happen to the values of those houses? Everyone will need a house to survive, so everyone would be willing to offer whatever they possibly can.
A reason why economy might be cyclical is that while trying to organise all the logistics of what gets built, supply, demand and all that things can tip out of balance.
And I'd like to say, whether economy is artifical, social construct, it optimises and helps organise people. Without money you'd have hard time trading, logistically, keeping track of everything. And without banks or loans you might never be able to own a house or start your business. All of these things and economy benefit the society as a whole, it's just that sometimes things can go wrong, but it doesn't mean that we are worse off after things go wrong than we would be without economy.
You can easily see from those basic and primitive examples of how economy will make life easier/better for people.
You could construct modern economy out step by step, how economy came to be and it should give you understanding on how each of those steps solved a problem, helped society grow or just benefit people and make their lives easier.
You can start on the personal level and ask a question:
1. Why can't I just exist alone in the wild? You can, but it's very possible you get injured by a wild animal, are unable to hunt for food and simply die from a very simple injury very early in your life.
2. Okay, sounds like it would be better to cooperate with people, so if one gets injured, others can help out meanwhile. Also this would allow for some part of the group to focus their time on one activity like hunting so they would get as good at it by experience as possible. Someone else in the group could deal with helping people with injuries, so they gather experience there and will be better and better as future comes along.
And so on and on... You should understand why economy is important once you have gone through all the steps.
Educate the hell out of everyone and reform democracy with proportional representation, more direct oversight (populism, referenda,etc.) and less monied influence (campaign finance) and lifetime appts. Embrace democratic collectivism as a healthier alternative to either militant nationalism or wild west individualism.
I don't think you can ever really get rid of capitalism because you can't ever really get rid of greed. But you can certainly can make societal rules that make hoarding shameful and illegal, not celebrated. And capitalism doesn't have to be exorbitantly speculative the way the American system is. It just has to be strongly fettered and subservient to democratic controls, not own the government.
Sounds like a fantastic project filled with economic, sociological, political, and ontological questions. What's the space of categorizations and which categorizations have the most compelling explanatory power?
As an example, here's a statement[1] in the tax code which defines "capital asset." Enjoy!
Regarding capitalism and greed. Isn't capitalism in its simplest definition just exchanging goods and services for tokens representing value? Greed is not essential to the definition. One could sell one's goods or services for fair prices, take modest profits, pay suppliers and workers equitably. This would be defined as capitalism. No greed present. Perhaps we go wrong when we fail to create or enforce rules of fairness.
It's not a binary thing. Among democratic, capitalist societies (meaning leaving out other forms of government, like China's or North Korea's), there is still a lot of variation between how much the wealthy are taxed, what social services are provided by the government, how financial markets are regulated, etc. Even within US history itself, there are stark differences between the New Deal era, the post-Reagan years, the Clinton era, etc.
You can't ever really get rid of wealth and power altogether, and I think attempts to do so generally backfire and create concentrated corruption instead (see: every failed supposedly "communist" regime ever, which became authoritarian oligarchies instead). However, you can tinker with the tax burden and social services ratios.
Thankfully, we don't have to either reinvent the wheel or toy in hypotheticals. There is a huge body of research on cross-cultural, cross-society comparisons of basic services provided by different democratic, capitalist governments (infrastructure, defense, healthcare, education)... plenty of lessons to be learned by comparing Britain, the E.U., the Nordic countries, East Asia (Japan/Taiwan especially), India, etc.
The US isn't the only capitalist democracy, but there are some things that our particular take on it are particularly bad at (campaign finance, gerrymandering, privatized healthcare, privatized pipes for electricity/internet/water/etc, time-based water rights...) and others that are very much debatable (the permissiveness of free speech, journalists' rights, government transparency, mass surveillance, religiosity, guns...)
None of that requires fundamentally changing capitalism, just tweaking the regulations here and there to impact the wealthy more than the middle-lower classes (sometimes as asked for by the wealthy themselves, in the case of Buffet or Gates' calls for increased taxation).
Maybe no modern democratic, capitalist society is perfect, but some of them have solved problems better than we have (with tradeoffs, of course)... I think the most common tradeoff is that a society produces fewer extremely profitable companies & billionaires, but often the average citizen has a better quality of life (measured by life expectancy at age X, level of education, accessibility to basic services, amount of free time, disposable income on a PPP basis, consumer protections, ratio of governors to the governed, etc.) The USA is just heavily pro-billionnaire to a level that's detrimental to the rest of society. That's not inherent to capitalism necessarily, just unfettered (loosely regulated) capitalism.
> Isn't capitalism in its simplest definition just exchanging goods and services for tokens representing value?
I am not an economist, but I'll try to provide a semi-informed take. Someone please correct me if I'm wrong. AFAIK what you're describing is more the definition of a currency (and a market, in a broader sense). A market alone doesn't make capitalism. You can have a tokenized exchange of goods & services (i.e. a non-barter-based economy) in other socioeconomic systems too, whether monarchies or feudalism or fascism or authoritarian-distributive societies like China (as distinct from post-statehood communism). You can also have alternative currencies at a local level like time banks (an hour of my time for an hour of yours, rather than $s in between) and alternative local currencies (money that can only be spent within a local township/county, usually used alongside USD but at a favored exchange ratio when you "keep it local"). And of course crypto.
What differentiates "capitalism" is the differentiation of "capital" from "currency". Fundamentally, it isn't about the means of exchange (whether you trade a horse or $500 for that horse), but about ownership of the means of production: i.e., who owns the horse ranch.
It was helpful for me to think of capitalism as an evolution of previous economic systems. In the, a priest could own a temple, or a king could own everything in his empire, while a lord might own a particular area and the productivity of his peasants within it. The means of production were owned not by the laborers but by some sort of oligarchy, usually passed on by blood & marriage. Social mobility was very limited and peasants would generally not become lords.
Capitalism allowed the private ownership of the means of production, meaning farms no longer automatically belonged to lords & kings, but whosoever accumulated enough stored value (whether in dollars, gold bars, or whatever) to buy & own that farm. Then, by agreement (and often backed up by a state-enforced legal system and a monopoly on force), other actors in that society recognizes that ownership, meaning the state/king/lord can't just come in and take it without eminem domain, if other people tried to take it it would be theft, etc.
Then from that one horse farm, you can eventually save up enough stored value to buy more horse farms, maybe some railroads too to help transport feed, maybe eventually the railroad company itself, and then enough to eventually lobby/bribe the state itself and buy yourself private militias and bespoke laws made to benefit you. Social mobility was somewhat higher than under feudalism, though actual rags-to-riches stories are far and few in between. But the end point is that under this system, ownership is determined based on that recorded transaction where some store of value (currency or otherwise) is exchanged for a means of production, and that ownership is recognized within the legal framework of that society.
> One could sell one's goods or services for fair prices, take modest profits, pay suppliers and workers equitably. This would be defined as capitalism. No greed present.
This only works for a limited time, in a wild-west type marketplace where there aren't much efficiencies and consolidations. In time, usually winners gradually begin to emerge, who can then buy up all their competitors and start dictating prices and influencing laws, or create company towns or rig entire elections or outright murder people while the state looks the other way (Pinkertons, Halliburton, defense companies, etc.). At some level, one company reaps the benefit of extreme efficiencies of scale (like Amazon) while their competitors, governments, and arguably citizens/customers suffer from their unchecked power.
> Perhaps we go wrong when we fail to create or enforce rules of fairness.
Yes, and again, those "rules of fairness" already vary significantly, meaningfully, between modern, developed capitalist democracies. You can tweak taxation rates, consumer protection laws, campaign finance, liabilities (looking at you, Purdue), monopolies (infrastructure and tech), blah blah blah... all without fundamentally abandoning capitalism.
You can, of course, also go further and try to replace capitalism with something else, either more or less democratic, but it all boils down to: who controls the means of production. But if you don't account for greed and build in checks-and-balances along the way, the people who want to accumulate wealth and power WILL do so and accumulate more and more over time until nobody else is left with any. That can happen under feudalism, capitalism, fascism, corrupt "communism", etc. I'd say the answer to "how to prevent excessive greed" is more democratic than economic; at the end of the day it requires a forced transfer of wealth, sometimes willing but often not, from a privileged few "haves" to the much bigger blob of "have-nots". That can happen through regulation, taxation, violence, ethics, education, whatever... no economic system, absent an ethical and legal framework around it, will automatically accomplish that objective. There will always be bad actors, and either your system is designed to take them into account or it'll soon become their victim, no matter what you label your particular -ism.
Once you get bigger than a small village you have to believe in the system. The system is, throughout history, a hierarchy, and the hierarchy is defined by an overarching mythology of who or what is good and pure - the religion, nation, etc. - followed by division into ranks and groups. Business and finance becomes part of this system as a mechanism to offload credit and facilitate market exchange. While business and finance can be studied in a technical sense, the way in which humans ultimately use it is socially driven, and market norms vary widely between countries. It's an enormously inexact system the way we have it, because some groups define the rules and others are enforced-upon. That dysfunction lies at the heart of why economies crash, since that allows the elite to live in a Disney fantasy for a while, at least until the rails run out. They can "afford" to ignore society's limits and set up the game to benefit them as long as their status remains in place, and likewise people want to look up to elites as the system in manifest, which is why we have so much fan worship and a sense of national competition.
And so the value of money tends to revolve mostly around the overall validation of the hierarchy as it stands; break that and you break a country. This is a major part of why cryptocurrency incites strong reactions; the beliefs it validates are all premised around consent to some communally defined principle of value(with Bitcoin being an direct extrapolation of labor theory of property to computing resources), and don't have the with-us-or-against-us-by-force qualities of a national currency. That pulls it out of the competing-hierarchies framework in a disconcerting way; there's no leader to assassinate, no bureaucracy to infiltrate. You can, of course, rush in to corner the market that is already there, squash competition and attempt to enforce your preferred hierarchy by dictating the development process - and that is the thing being done at present - but the jury is out on whether controlling it is really possible or if it's going to slip through iron fists like so much sand.
Have these executives shorted the housing market?
Am I right in believing that a big housing market crash is unlikely unless there's an accompanying big stock market crash? House prices have been rising since the 2008 crisis, and any significant downturn in housing prices will be responded with people selling other assets to buy new and now-cheaper properties, thus raising house prices again.
Here in London house prices went down majorly during the first months of the 2020 pandemic, but they quickly went back up and kept raising as people tried to get discounted property.
Key factors in my opinion are:
- More people live in appartments their whole lives
- A lot of people have low salaries so they choose to live in or buy an appartment instead of a home
- Financially insecure people can't help bid up prices with ridiculous mortgages as happens in the US/Canada.
- I also think there is much less foreign money here.
- A lot of people inherit here as well, so they don't have to buy a new home
- Population dynamics mean less demand, versus massive immigration in North America (which is focused on key cities)
I think the German market has less "upside" if you are an investor but also less risk.
If you are looking for a home for your family, Germany is a large decentralized country. There are tons of nice places to live for a reasonable price near cities where you can get good jobs.
Düsseldorf, Berlin, Köln, Frankfurt, Mannheim, Stuttgart, Hamburg etc.
This diversity takes pressure off of a few economically dominant cities i.e. Toronto, New York, bay area.
Of course, I wouldn't base my decision to live in Germany based on economics, unless you are a German. The housing market, is probably the least important difference I would consider between Anglosphere and Germany.
Something no Democratic President (or other Republican President, for that matter) has ever done.
The past three presidents haven't understood the danger of keeping rates low, but so far it has paid off for them.
The Chinese are facing the same temptations we are now. At least some of the time they make longer term choices. I won't pretend that's always the case, but at least some of the time it is (eg the current Evergrande situation).
They have their own political issues so I'm definitely not saying we should just copy them. But their ability to plan more than 2 years ahead is a major advantage they have over us...
But the point I was making is that when a big company goes bankrupt, at least in this case, the CCP let it happen and didn't just keep it alive on zero interest loans. That's the right decision in the long term but it's painful in the short term. That's a decision the US and UK have been unwilling to make since 2008.
And of course Sweden had a major financial crisis in the mid-1990s.
Take Ireland: big sovereign debt issue after 2008. No issue today because they got on with austerity and bounced back. Iceland (I believe) also made tough decisions (allowed bankruptcies). The Dutch aren't running their whole economy around keeping ABN Amro afloat either.
That's the issue here: everyone makes mistakes but do you take the hit and clean up or pretend it isn't a problem and just keep extending credit...
Also, I mean since 2008. Pre-2008, rates were pretty healthy, but central banks haven't had the courage to raise them back to that level. Economically speaking, we are not in a crisis, and we have not been for a long time.