Residential Finance

A Matter Of Life And Debt

The typical 1950’s family was a single income one. House prices were low because disposable income from a single wage could not provide much for servicing a mortgage.

Keynes had probably plagiarized and certainly popularized the viewpoint that economic stimuli were critically needful. His stimulus was increased credit (read debt) as an act of creation by the banks. If the private sector defaulted on seeking and accepting these obligations to a sufficient extend, no matter, the Government would do it on their behalf. A prosperous 1960’s was assured.

The biological and demographic knock-on from this, as it would eventually turn out, has not been so happy. While banks would happily fund the inflation of house prices,* thereby increasing debt (read also demand) to finance an expanding economy, there was a severe limitation; the single income family. Women’s liberation became an economic imperative if a second income was to be harnessed to servicing the higher mortgages, and funding an expanding economy with increased debt.

With both parents working, raising families was more difficult. Family sizes fell and fell, and are now in all “advanced” economies below population replacement levels. This in turn places a restriction on economic growth. Without a growing population we will not need more schools, more hospitals, more housing and infrastructure generally. As Napoleon said “Growth and jobs are to all else, as ten is to one.”   OK, no, but he might as well have!

So the ingenuity of man invented the inverse invasion. Once the indigenous population had been sterilized with debt poison, the hunt was on for replacement people. Anybody who blames the dislocation on the migrants is a blithering idiot. Each generation henceforth will displace itself, it would seem, with new people imports. Self-demolition will at least save us the stress and headache of debt-demolition, and this has to be a good thing? Yes?

The most curious thing about debt, is that it is at once impossible in nature (you can’t feed a monkey with next year’s bananas), and given a monopoly of demand creation other than by bank created debt, it is also impossible to feed him now without a banana debt. Men can’t conceive of any way of running the economy which is not impossible in a physical sense. The impossible we do continuously, the possible will take us a little longer.

Debt management is on every economists mind now with the coming of corona virus. Can anyone think of an alternative approach? Could any debt-free demand (even in limited measure) ever be conceptualized and then incarnated into a human economy? Are demand and debt really inseparable; or could we find a way to have more of the former without increasing the latter?

Cows eat grass without acquiring a mortgage. Do you think that we could do it with peanut-butter sandwiches?

* Two/thirds of the money supply in advanced economies (e.g., UK, USA, and Australia) is now (2020) the result of the banks creating money for residential housing loans.