Housing Bubble Collapse, Debt Default, And Life In Deflation – Paradise Found

costofliving1968
Comparative Costs Of Living Under A “Sound” Money System, The Bretton Woods Bastardized Gold Standard Of 1968

This post will discuss the upcoming collapse of the housing asset bubble worldwide at the terminal end of a half century long credit bubble unprecedented in human history, how this bubble has distorted the whole price discovery structure of the real estate market and by extension construction industry, and how governmental regulation has mis-allocated capital enabling wasteful, unproductive and inherently ugly modern architecture… I will then discuss the real estate and construction industry of the future where the deflationary forces of a competitive and decentralized financial system of precious metals and digital currency will create a completely different set of incentive structures, leading to conservation and a more sustainable mode of construction and real estate market… Changing the money changes the world we will live in

The Golden Sixties

Take some time to look and think about the cost of living chart above, and try to visualize the costs then versus our comparable costs of living today… Even though the late sixties was at the fag end of the bastardized Bretton Woods Gold Standard with the US Dollar being convertable for a fixed amount of gold bullion and with all other fiat currencies more or less pegged to the US dollar, while there was still gold backing to Central Bank fiat there was a link to scarcity and true price discovery, and so stability for that foundation and backbone of society, the family unit… Houses for generations previously had been at a range of affordability for a family of usually one breadwinner (husband and father) and in the US in the above example the average cost of a new home was double the average annual salary, ranging typically between two and three times the average annual salary… So when looking to buy your first home under a gold standard and acknowledging your lowly starting salary in life would only stretch to a modest first home on your way up the property ladder, you knew you had to work approximately three to five years to purchase a house outright with no debt… In the sane world of a stable monetary standard, taking on mortgage and debt was virtually unnecessary when you could rent property cheap (approximately twenty percent of an annual salary from the above index) and save hard for a few years and then you would have your own property outright… No mortgage repayments meant having far more saving power for investing in your work and for working yourself up the property and social ladder as more comfort and better environments became affordable for anyone… A life under a gold standard was an enriching and rewarding system as long as you were willing to put in the work

The Nixon Shock Of 1971

The Nixon Default was a momentous event in world history and has unleashed a forty five year and counting batshit mad monetary experiment that is busily destroying society and consuming itself simultaneously… When the US defaulted on gold it implicitly broke a natural and eternal chain in the marking to market of money and scarcity, and especially critically the purchasing power of money… The deflationary increase in purchasing power and standards of living enjoyed in the West from World War 2 onward through the fifties and sixties (known as the post WW2 boom) was halted and reversed as we entered the stagflationary seventies when rampant monetary inflation debased and impoverished the young Boomer generation in their family formation years, often forcing both parents of young families into the workplace and fracturing the traditional masculine and feminine quid pro quo… The money really does affect the whole of society… Under a scarce commodity backed money then there is only a set amount of one commodity (gold and/or silver) to exchange for all other goods and services, and so all those goods and services must become cheaper in that same set amount of commodity money… Under gold it’s the money that does the work while you get wealthier and less dependent on work by using it and saving it, this is how money should work in a free market

The Perverse Incentives Of Inflationary Currencies

Whereas a deflationary system consists of a money scarcer in comparison to the goods, services and property it is exchanged for, an inflationary system consists of unlimited credit creation exchanged for a finite limit of exchanged goods, services and property with the prices of those same goods increasing in price at the expense of the decreasing purchasing power of the currency and by extension society… Whereas a deflationary monetary system results in increased purchasing power of the currency for the whole of society, inflation results in reduced purchasing power of the currency for the whole of society, so you may ask who gains from an inflationary monetary system? The answer is government backed bankers, with the end of scarce gold backing are given an unlimited licence to print money which they are able to utilize for their own enrichment in currency AND property, at the expense of the productive citizentry… Because of the powers of unlimited credit creation money is no longer scarce or indeed scarcer than the goods and services exchanged for, now currency is created at a rate far in excess of the private production of goods and services leading inevitably to more units of currency per unit of goods and services, which translates into increasing prices paid in currency or said another way the diluting of the purchasing power of society…

The inevitable side effects of inflationary policy is an increase of currency in the exchange economy and this currency must go somewhere, it must flow into different sectors and to different degrees that in turn distort the price discovery mechanism that effects every corner of every sector of the economy… Seeing as this excess currency has been pumped into the global economy since 1971 with the closing of the gold window, we can look at empirical charts and identify where this excess of currency has gone… There is a treasure trove of empirical evidence and data for this rampant inflation, you can look at government employment, the prison population per capita, the wages of sportsmen and the financialization and commercialization of sport in general, the rise of the transnational corporation, and the increasing debts manifesting as blowing up of stock bubbles, bond bubbles, and especially importantly for this post, real estate and land bubbles… A critical sector where this excess of unconstrained credit comparable to constrained REAL assets has been pumped is the land and housing sector that has distorted real estate and land asset price discovery wherein the average house value has ballooned from two to three times average annual earnings to six, seven, ten times average annual earnings in the last fifty years, this is not to mention specific localities within desirable neighbourhoods or in locales within large cities or capitals where asset and real estate values have outstripped earnings even far higher…

Inflation And Real Estate Implications

The implications of inflationary monetary policy are far reaching and increasingly catastrophic for society the longer the asset bubble goes on… Instead of home and real estate prices being deflationary as under a gold standard, home and real estate prices and values will become inflationary over a given period… For a Baby Boomer for example, despite the impoverishing stagflationary seventies real estate prices were far more affordable back then and with limited need for a debt or mortgage a property could be bought outright, and so the Boomers have watched as their property values have exploded over the last few decades despite numerous house crashes and popped bubbles in that time, the central banks have subsequently succeeded in arresting the crashes by blowing the next bubble… So in effect the illusory paper wealth that the Boomers now think they are sitting on has only been achieved by pulling up the ladder behind them on their children and grandchildren’s generations, Generation X and Generation Y (Millennials)… As property has become more and more unaffordable for these generations they have been forced to rent for longer (in an era of rapidly inflating costs of rent) which consumes more of their income for converting into home ownership and has also forced them to take on ownership with more debt in the face of lowering interest rates and reduced interest from savings while cheapening the cost of debt and lowering standards for borrowers, thus enticing the young to get into debt from whence you are then in the banksters pocket… As I would consider home ownership the most critical component of sustainable family formation, children, and therefore all of our futures in the long run, inflation of real estate and the ballooning debts that have had to be borne by these younger generations has resulted in stagnating family formation and is now contributing to the demographic timebomb of more old people and less young people that is engulfing the Western world… This demographic timebomb can only keep accelerating under inflationary central banking which itself amusingly only accelerates the collapse, because of the stagnating numbers of productive tax and debt serfs to maintain the intergenerational ponzi scheme of Democratic Socialism that central bank inflation has created… Inflationary monetary policy is a disaster for the young and for family formation which itself is a disaster for a system dependent on increased extraction of resources and labour of the young and productive for its survival, so the death of the family is also ironically the death of the state that is destroying it! Some circle jerk!

Inflation And Taxation

Inflationary monetary policy and unlimited credit creation strips purchasing power from the productive population and transfers it to the unproductive population, by being able to print into existence new branches of government including the banking, taxation and accounting bureaucracy, and more perverse social engineering projects to further undermine and destroy the traditional family unit through educational and informational control of media and print, to further brainwash and mind control the generations that have followed the baby boomers… The increasing purchasing power of money that you had under deflation is fraudulently mis-allocated and spent on Governmental Taxation staff, on accounting wonks and administrative red tape, and on accountancy and banking kerbs that strip you of your remaining liberties as it strips you of the purchasing power of your money, which lest we forget is basically your stored labour sweat, effort and productivity… But quite apart from the increased bureaucracy to extract taxation from the productive populace inflation also perniciously aides in this extraction, as tax thresholds now become lower over time which further increases tax extraction… For an example in the UK an income under £43,000 is taxed at 20% whereas going over this threshold and earning over £43,000 subjects you to a 40% rate of income tax, which is double… So with a Central Bank targeted inflation rate of two per cent a year is two per cent a year closer that the average productive citizen comes to an increased tax threshold that will further impoverish them that little bit more, further inhibiting capital formation and personal wealth while enhancing the wealth of the state to levy additional taxation and enforcement, and so on… Inflation encourages taxation and taxation encourages further inflation in a vicious spiral of misery and mis-allocation

Another angle I will take regarding inflation and taxation is with regards to the totalitarian wet dreams of central planners everywhere, that of social engineering and destroying the family unit and by extension society at large… This happened during the stagflationary seventies and after the severing of the link to gold when double digit annual inflation also meant double digit drops in purchasing power of household spending, and double digit drops in the standard of living of the average family household… Under a deflationary gold standard one breadwinner per family was enough especially with increasing standards of living, however a radically diminishing standard of living under an inflationary fiat system meant that to maintain the living standard of the family unit, women over the West mass migrated into the workplace for the first time in human historyWhere did all these female jobs mysteriously appear after being redundant the rest of recorded history??? The vast majority but not exclusively into newly created government or nationalized industries, local authority bureaucratic and regulatory administration paper pushing jobs, compulsory public educational institutions of schools and universities un-organcially enlarged by inflationary monetary policy of unhinged governmental and central banks… Here again we see the how inflation and taxation work together as a parasitic brotherhood to destroy the voluntary institutions of family and community in order to soak up the unlimited credit creation of unhinged fiat currency, our insane elite overlords (principally the Rockefeller Crime Dynasty using the Rockefeller Foundation and the CIA) funded through education and “popular culture” the Sexual Revolution and Second Wave Feminist movements of the sixties and seventies in effect to expand the taxation base so that both parents would be enslaved in the modern workplace, further accelerating the growth of both inflation and taxation as the workforce radically grew with a good portion of half the population (females) who previously were predominantly housewives and homemakers (and therefore outside of taxation and the tax base) now working and taxable… With women now working it allowed the Compulsory Education System (consisting of kindergartens and mandatory schooling from ages 4-16) to take over the raising of children for forty hours of every week perversely in many cases with many women teaching other people’s children while other people were teaching their own children! And we wonder why Gen X and Millennials are so emotionally stunted, miserable and fractured???!! All by design

Totalitarianism Full Retard – Inflation, Taxation, Regulation

If inflation feeds taxation and taxation further feeds inflation, then inflation and taxation contribute to the third leg of the totalitarian modernist hellhole stool, that of regulation… Inflation and taxation as described above creates a new army of artificial workers that could never exist under a stable and deflationary monetary standard, but from these new slave workers can now be extracted a portion of their produce in the form of income taxes (and consumption taxes) as long as of course they are employed in jobs… As they wouldn’t come to these jobs in the REAL world, then you must create jobs that weren’t there before, and this can only be achieved through inflation… Print money and you can spawn into existence a vast regulatory and accounting apparatus that encompasses national, regional and especially local voluntary relationships be it supply or demand of services… Indeed as I described at length in my last post, the only way socialism and complete central planning can function is by the registration, regulation and taxation of all property, by extracting private property from productive citizens to fund public welfare schemes and white elephants and in the process slowly strangle and subsume individual, family and community life… Take your pick from food regulations, health and safety regulations, environmental regulations, planning (architectural) regulations, building regulations, industrial regulations, agricultural regulations, and on and on and on, which may be directed from national or international government but must be administrated and enforced by local authorities and the jobs “created” by money printing, which guts out the voluntary private sector and local economy as bureaucrats and regulators kill any creativity and productivity off

Peak Centralization And Collapse

A central theme of my writing has been the Centralization and Decentralization trends of history and how after the last five century historical supercycle of centralization with the last fifty years since the severing of the tenuous link to gold being the blow off top in centralization, banksterism and totalitarianism, this is all about to collapse in the face of the new decentralization trend… The decentralization trend that started with the internet decentralizing (and disintermediating) traditonal informational gatekeepers of public educational institutions (schools and universities) and centralized informational sources (television, media and print), that then morphed into decentralized global trade (e-commerce and peer 2 peer trade), has one final step for the full decentralization of the global population and exchange, that of the financial and legal system… The archaic, centralized and fragmented legal and financial systems of central banks and globalist and national governments that inhibit and pillage the productive global citizenry of their property rights, hard work and productivity, is the next frontier for technological disruption that will inevitably accelerate and conclude in the next decade with the collapse of both central banking and national governments, to be superseded by local government and decentralized financial system, as I briefly encapsulated in my last post The Collapse Of Socialism – Collapse Of The Banking And Accounting Bureaucracy

Decentralization Full Retard – E-mail, E-commerce, E-money

My extensive writing on the decentralization trend has posited the internet as the beginning point just over twenty years ago which has completely revolutionized the disseminating of information while also disintermediating gatekeepers and shills of the traditional (Elite funded and controlled) and increasingly legacy media, if you need any evidence of this now rapidly accelerating trend you need only look at the Brexit and Trump phenomena of the last six months driven to a large extent by online social media… If information exchange was the first application of a distributed internet protocol then the second application to follow at the end of the nineties was decentralized peer to peer trade and e-commerce, although a bastardized version of person to person exchange corrupted by central bank inflation (Dot Com Bubble) and by governmental taxation and regulation that has destroyed the small independent trader for the benefit of lobbying and corrupt corporatism, with corporations such as Amazon, E-Bay and Paypal existing as convenience middlemen and generating billions in revenues as essentially skimming operations that would and could not exist in a decentralized financial system… So the third and final application of the distributed internet will be as a conduit for the decentralized and digital layer of the future financial system that is yet to fully mature, and it is this application that will be the most far reaching and life changing disruption for all of us in this next decadeAnd the application that takes us from inflationary debasement to deflationary enrichment will be the internet protocol in combination with a barely eight year old protocol, that of blockchain technology

The Bitcoin Phenomenon

I have extensively discussed in my past posts my vision of the future decentralized and competitive financial system as being a combination of physical precious metals (gold and silver) and digital currencies, with both complimenting each other and offering different benefits and advantages, precious metals as physical hard assets, savings, pensions and proven store of value, and blockchain technology offering low barrier entry, instant global movement of wealth without taxation or regulation, and BOTH being stable and scarcely issued and hence inherently deflationary currencies…

Blockchain technology is a very broad term so the blockchain that has captured my imagination these last four years as the first, and at this time by far the most successful iteration and currently the ONLY globally scaleable blockchain is Bitcoin, that I have discussed in past posts in the contexts of Overview, Gold, Banking, Property and Law, Barter and Exchange, Credit and Currency, The Halvening, and Adoption DemographicsI have conceded in many posts that the success of Bitcoin is not a certainty and that it could die or be superseded by a superior blockchain anytime in the future, however the monumental invention of the blockchain cannot be put back in the bottle and so the future of global exchange is digital and outside of governmental and banking control… The blockchain I have extensively argued throughout all my posts is a major step forward for humanity that is hardly awoken to appreciate this, yet… However in a splintering and anti-globalizing populist revolt and increasingly hostile climate to international governance and finance, the decentralizing will only accelerate from here… The next five to ten years will see a radical transformation of society that I can now start to discuss

Decentralization And Deflation – Brothers In Arms

As the process of centralization is inflationary and impoverishing due to the inherently wasteful, mis-allocating and destructive mode of production that centralization generates and sustains, so the process of decentralization and distribution of power over private property will be inherently deflationary… That technology eliminates jobs should be clear for anyone to see and to many this is a disaster for the working and low income classes however the deflationary trends of technological developments of the last fifty years must be appreciated within the context of an infinite amount of fiat credit creation to soak up all that deflation and redistribute it to the welfare whores at the top and bottom of modern democratic society in the course of milking the productive working class to death… But put inherently deflationary technology operating on a deflationary currency and financial system, then the whole division of labour and incentive structure of society is transformed… For example, in an inflationary financial and governmental system it is finance and government that grows at the expense of the productive citizen, (the U.K for example where the finance sector is approximately ten per cent of Gross Domestic Product and Government about another forty to fifty percent of GDP) so in effect fifty to sixty percent of today’s UK economy is middleman administration and regulation, these people create nothing but live by putting up barriers, controlling financial conduits and registration and accounting gateways, they live by pilfering, pillaging and skimming operations over the exchange of the productive citizen… That sixty percent of UK gross domestic product of governmental and financial “services”, Bitcoin does for freeNo taxes, no regulations, (virtually) no fees… The Establishment Status Quo who cannot control it, cannot skim off of it either and why Bitcoin is highly reactionary in rolling back the Elite class that manipulate and rob us blind… So in my opinion in the next decade as Blockchain Technology and Bitcoin consumes the “traditional” and centralized financial and governmental system, Bitcoin will eliminate fifty to sixty percent of the United Kingdom’s Gross Domestic Product, millions of people will lose their jobs so your average economist and man on the street will decry this a disaster, however just think what jobs are being decimated here; it is the middleman economy and unproductive class of freeloader, the banker, the bean counter, the tax inspector, the local and national regulator, this is the creative destruction of a vast class of public sector bureaucrats to the benefit and enrichment of those that will increasingly flourish in the private and productive sector… Technology is intrinsically deflationary but Bitcoin will be the mother of all deflations, deflating the public sector while inflating the purchasing power of the private voluntary sector… The technocratic bureaucratic class will for the first time in their life have to produce to survive, the gravy train at an end

What the centralized financial and governmental matrix loses, the deflationary decentralized financial system gains in purchasing power… All the production, saving and wealth that Bitcoin will conserve by disintermediating inflation, taxation and regulation will flow into the centrepiece of Bitcoin’s cryptographic and mathematical genius, ONLY a maximum of twenty one million (21,000,000) currency units, providing a hugely deflationary anchor and purchasing power of currency for Bitcoin holders… As I have described numerous times in previous posts just one year of global Gross Domestic Product is equivalent to seventy trillion dollars, divided by the maximum cap of the Bitcoin currency would give one bitcoin a value of three and a third million dollars each! That is only one year’s GDP! This highly deflationary anchor creates a virtuous spiral of incentive structures such as on the one hand incentivizing those producing goods and services to exchange and save in a currency they know will constantly be increasing in purchasing power and value, while also incentivizing savers to consume some part of their savings because the prices of everything are rapidly becoming more affordable, and so the higher the market cap of Bitcoin and by implication the purchasing power of an unit of its currency (bitcoins), the more the ownership of bitcoins is distributed among more and more users and the higher the velocity of currency… This will work exactly the same for gold and silver as it is currently only a fraction of the general public that saves in gold and silver, but the eventual explosion in the price and purchasing power of an ounce of gold and silver will incentivize precious metals bugs to liquidate some of their holding by spending and capitalizing on their prudent investment, and so the ownership of precious metals, like Bitcoin, will become more distributed, reducing wealth and ownership inequality

Life In Deflation – Paradise Found

An important component of the deflationary spiral is a scarce and ever dwindling flow of liquidity to be soaked up by production and exchange, and therefore currency and money becomes more valuable than all the property and production it is exchanged for, which translates as lower cost of necessities and luxuries and higher standards of material living… The trend of inflated asset prices is reversed and so in a deflationary system the cost of living and the cost of housing will be coming down year after year… After the collapse of the inflationary fiat debt bubble the overvaluations created by money printing will first be devalued and eventually will have to be repriced in new currencies (gold, silver and bitcoins) and the housing market will like every other sector and industry be repriced to reflect the scarcity of the money and currency in circulation… Decentralization will radically revalue the housing market as with any and all other markets, by once again making assets affordable… Being incentivized through deflation to hoard money instead of physical assets such as commodities, houses, land, etc, means that the only bubble is in the money and none in the goods, services and property exchanged… This could not be a more profound development… Speculation and bubbles become prohibitive, and therefore investment and conservation and maintenance becomes the norm, because you can no longer speculate on property values going up, they will be going down in value over time… This is in fact the market imposing a penalty on holding assets in lieu of money and is the market’s method of distributing property in society more equitably, by making the money the most valuable commodity, be it physical (precious metals), digital (Bitcoin/Blockchain) or paper (local currencies)… Unless property and asset owners are able to command a rent yield in excess of the deflation of the currency (and the depreciation of property) then investing in real estate will not be the industry that is has been this last half century of inflationary debasement…

Deflation And Real Estate – The End Of Financialization

Deflation and reconnecting to stability and scarcity will naturally be profound for the land, housing and construction industry alike… The end of inflation is also the end of financialization, and so real estate as a speculative investment creating destructive booms and busts will end, replaced by a perpetually devaluing real estate sector which in turn distributes and decentralizes property ownership as far as possible… Housing and real estate devaluation brings a home closer to the ownership of the young as it did during the Golden Sixties and I would fully expect that after the repricing of the real estate sector during the collapse of fiat, that real estate will again be continually getting more affordable… Indeed the last fifty years of inflationary credit bubbles has unleashed epic mis-allocations of capital a fair bit of which has flowed into the real estate sectors, in both urban and rural areas over the West, it has created suburban sprawl and ghost estates of empty houses and in places where the people don’t exist to live in what has been built, due to the perverse incentive scheme of inflationary fiat credit… The final bust of this fifty year long credit boom will reveal a severe surplus of unproductive building and development, and I expect a lot of demolishing and ripping down in the next generation as supply realigns with demand, especially in Western cities and administrative capitals, and will in my opinion be more applicable to urban rather than rural areasBut across the board either in towns or cities or in the countryside this destructive recent trend of increasing real estate values and increasing unaffordability for the young and future generations must be reversed, if we are even to have a future

Deflation Extinguishes Debt

Whereas inflation is in itself a debt and issuing debt naturally encourages more debt and leverage onto which the whole Western real estate house of derivatives is precariously resting, deflation makes debt prohibitive and so debt will continually be being extinguished… As inflation encourages consumption and taking out and rolling over debt because under inflation (and artficially lowering interest rates) debt is continually becoming cheaper and more abundant, deflation increases the cost of debt while incentivizing production and saving so you don’t need debt in the first place… As real estate values become more affordable over the medium to long term time horizon, so the less debt and going into debt is necessary which de facto consumes debt and will continue to consume debt until the debt is wiped clean when asset values fully reflect the scarcity of currency they are being exchanged for, and it is at that point that asset values will be so affordable to currency holders that they will never need debt again… The extinguishing of debts of pulled forward consumption from the future is the purging of waste and mis-allocation from the economy and when the system is fully purged is when this system comes back into credit, when production and saving becomes more valuable than debt and consumption, which will happen in the next decade…

So as inflation encourages hoarding assets and property over money, so deflation encourages hoarding money at the expense of property, and for a real life example of how this deflation is virtuous, I will draw on somewhat of a problem in my neck of the woods that of empty and abandoned housing… For instance when there is a death of an elderly relative that property will pass to children or descendants while they decide what to do with it, and many will decide to sit on and/or neglect it… Why? Because in today’s inflationary system property values are expected to be continually increasing and so people recognizing that their purchasing power will increase not by liquidating property instead may sit on houses and land for years and years without either living in or maintaining them, again highlighting how inflation is a blight on the market and incentivizes inactivity and is so wasteful… However in the deflationary financial systems of the future families will still be able to hoard land and property however they will be penalized for doing so, for example a deflation of five per cent per annum will indicate a five per cent depreciation of housing and land values in the next year, and otherwise stated a penalty or tax of five per cent per annum on hoarding the property over money… As no-one likes seeing his or her net worth falling, they will be incentivized to liquidate land and property that they do not need which can then be transferred to other members of society distributing property more equitably amongst the local population… Deflation penalizes unproductiveness and abandonment of property that can be a blight and eye sore in both rural and urban settings, and encourages productivity, the living in, the working on, and maintenance of land and property

Deflation Greasing The Property Ladder

As inflationary monetary policy creates inequality and an enriching of the sub-set of one per cent by hoarding property as they control the printing presses to buy it all up, so deflationary distributed monetary systems creates equality and the distribution of property to all classes of society from the top to the bottom… As property is now affordable (and becoming more affordable by the year) to more and more of society, young people can purchase their own property outright boosting property ownership at the obvious expense of the rentier class who hoard and rent out property, inhibiting property speculation and rip off rent, and as more of property is now being owned outright than being rented there is more of a personal incentive to conserve, maintain and add value to property rather than the indifference and neglect that is often a symptom of rented property, a deflationary system moves us farther away from serfdom (owner and renter, lord and serf) and toward liberty (property ownership and free man class) and therefore diversifies the property ladder and social mobility… So the young will sooner become property owners, starting out small and then in the production of goods and services for money can afford to either extend and develop existing property or upgrade to a larger property for raising a family and then later in life downscaling for a life of retirement when the children have left the nest… As all property will be losing value (priced in currency) then you will have to sell cheap but remember you will also be buying cheap so this is a zero sum gain, eliminating property speculation and protecting home owners from boom and bust volatility, negative equity and losses from investing in property ownership… Deflation is stability for the common owner, and so encourages a very fluid and meritocratic property and social ladder that is very competitive diverse and varied giving society an equal platform on which to build the future

Deflation And Construction Costs

Another aspect of deflation worthy of discussion is how existing property is discounted against new construction, and what kind of incentive structure this creates… New housing developments obviously have some fixed elements of input costs, those of labour, plant, and materials, and more flexible costs such as overheads and profit, that will give you an accurate value of the cost of new construction… However existing property is already built and therefore does not have any input costs, its value is purely subjective but objectively based on a comparison of house prices in the area by a real estate agent or surveyor, and so value must be calculated differently between new construction and used construction… The ratio of this new to existing construction is critical to a healthy and functioning construction industry, however this has not been the case the last half a century because of inflationary monetary policy… Real estate agents have gotten a bad rap the last generation for creating and urging real estate speculation and housing bubbles however this is merely the side effect of too much currency units chasing too few houses that is the direct symptom of inflationary monetary policy, and this will reverse under deflation and so the ratio of new construction to used construction will need to vastly adjust to reality… To elaborate look at the cost ratio between new and used products in nearly every other sector of the economy, be it a car, or machinery, electronics, or any sector comparing input costs with no input costs, then the old and used trades at a discount to the new as it must to anyone with a modicum of sense… So logically old and used property must in a sane world trade at a severe discount to new property however in our insane world this is not the case and used property commands sometimes in excess of twice the value of what it would cost a comparable property (and land) brand new, thus stifling homeownership among those looking to get on the property ladder and forcing them to go through the torture and sometimes years of bureaucracy of planning agencies and building regulations in designing and building a new house for half the cost… The incentive of the severe mispricing of used real estate should now become apparent, it encourages the over development of new housing at the expense of the turnover of used housing which creates unsustainable ghost estates and housing speculation and creates urban and rural sprawl that would not exist save for the money printing of central banks

Under deflation when assets ratios are more accurately priced because of the scarcity of money, then used property will trade at a hefty discount to new construction and so another destructive consequence of inflation is remedied… The tendency will be toward the recycling of used property (consuming far less capital) rather than the construction of new that will vastly change the composition of the construction industry with more emphasis on the renovation, extension and maintenance of used property rather than speculating on the construction of the new… And under deflation the construction cost of extension and renovation and maintenance will be continually becoming cheaper encouraging investment in conservation rather than mindless expansion…

Deflation And Conservation

As inflation is the funding mechanism of the other two heads of the evil hydra that is the modern state namely taxation and regulation, then so too is deflation the devouring monster of both taxation and regulation as we are about to see a healthy percentage of the western public that works for tentacles of government and finance be disintermediated, ignored, obsoleted, and locked out of a peer to peer distributed network of users that they cannot control or effectively surveil, we will see the end of planning agencies and building regulators and all of the rest of the bureaucracy than inhibits human ingenuity and creation, so the taxation and regulation aspect of societal incentive structures will be controlled by the market… The market will regulate itself by penalizing certain modes of production and incentivizing others and with its invisible hand guide society toward the most efficient and beneficial allocation of capital not just for the individual but for the whole of society… As long as you own your land you will be able to build anywhere you like, however you will be subject to certain inducements and penalties in coming to your economic decisions… Under deflation you will know that building a new house will cost far in excess of existing used housing so you will be highly incentivized to consider using existing property before building from new and so naturally new construction would be far less that what it currently is as the bloated values of used real estate drives excessive new construction that I contend a lot of will be torn down and demolished in the next generation… The trend of supermarkets and out of town retail centres, shopping malls and other suburban sprawl developments that have helped gut urban areas and streets of retail operations and shops only exist because of the centralized financial system and corporatocracy that gives regulatory and tax breaks to national and multinational corporations while taxing and regulating the small business owner to death, will also soon be reversed… As decentralization consumes taxation and regulation then the market will decentralize naturally under deflation which will radically change how property is allocated… For example here in the UK, the government in their eternal wisdom have a general rate of zero value added tax (consumption tax) for new construction and a twenty percent value added tax rate on existing or used property, which in effect adds a twenty percent surcharge on top of costs of renovating existing over building new, just one more absurd example of government meddling that has contributed to out of town retail sprawl while simultaneously emptying the high streets of modern towns and cities of retail… Deflation eliminates this inequality and now incentivizes renovation and maintenance and penalizes the construction of retail malls and centres, although they will have their place to some extent as they provide convenient services no doubt so retail operations will move back to the high streets in towns and cities for life’s necessities, butchers, bakers, fish mongers, grocery stores, clothes shops, the hardware store, tobacconist, and so on…

Deflation, Conservation And The Construction Industry

As deflation fundamentally changes the market incentive structure toward conservation over new construction this will naturally have a knock on effect on the whole of the construction industry… Architects and surveyors will become more concentrated on refurbishment and renovation and the conservation of beauty in terms of design and detail that will in turn have a knock on effect on the construction industry shifting shift building contractors from new building and technology towards craftsmanship and traditional building methods in conserving more the beauty of existing architecture, that will as a reminder be constantly coming more affordable in deflationary money encouraging further investment and renovation of property… Sound deflationary money as I have explained has a decentralizing effect on property ownership with people now hoarding money over property, this will extend to all industries and industry in general including the construction industry… With the end of taxation and regulation is the end of multinational corporation construction behemoths and their regulatory capture of governmentThe drying up of government and ponzi finance funded white elephants and boondoggles that could never exist without coercive misallocation will mean the drying up and dying of the large cap construction conglomerate, to be replaced with the privately funded small local builder, tradesman and craftsmanConstruction will decentralize increasing the number and diversity of the skills base of local construction which means smaller and smaller construction firms, and constantly decentralizing and distributing construction firms encouraging competition and discouraging collusion

Deflation And Cleaning Up Construction

A consequence of the inflationary boom of the last half century has inevitably been misallocation of resources which has affected the construction industry like any other… An over stimulation of consumption has allowed many to produce who shouldn’t and wouldn’t have been able to produce without increased debts and decreasing debt cost service that printing money creates, and has given rise to the get rich quick merchant and garden house variety of cowboy builder that has destroyed many people’s lives and given the construction industry in general a bad rap as an industry rife with lying, deceit and deception… Many or all of these are symptoms of the underlying root problem that is of an excess of currency over property that drives speculative bubbles in both bad and unsustainably planned and executed construction projects funded by debt and the debasement of money, with these unsustainable ventures obviously at the expense of the productive and prudent builder… However inflation can only extend and expand debasement so far until the rot is exposed, so the deflationary future we are heading into will purge this speculation, purge cowboys and get rich quick merchants and property empires and ghost estates and environmental destruction and all the rest of it, bankrupting the unproductive and handing over their assets over to the productive to create more sustainable construction… Deflationary forces and the dishoarding of property and the hoarding of currency will result in more societal equality and by extending competition as building operations further decentralize and progressively get smaller, faster weeding out unproductive and fraudulent builders further cleaning out fraudulent behaviour within the construction industry…

Deflation, Wages And Construction Industry Relationships

Under inflation the trend in any industry is toward the centralization of the means of production and labour ownership in the hands of less and less bigger and bigger firms, that by escaping the taxation and regulation forced upon the productive and downtrodden small business, labour becomes a commodity to be unionized and regulated to death with minimum wage laws and other diktats that divide and pit owners and workers against each other, that has spread like cancer through the industry the last twenty years further forcing the small and productive business owners out of business. laying off labourers and craftsmen to then be exploited by the larger corporations which can hoover up labour on the cheap locally, and this is in a nutshell is the trend of the last half a century of the construction industry in the West… As we head into deflation of both the currency supply and by extension taxation and regulations imposed upon industry then this trend will be reversed… The builders will progressively be downscaling and decentralizing as deflation essentially frees labour from regulation… The minimum wage for example is instituted as purchasing power is constantly being lost and therefore a regulatory law is passed to protect this purchasing power by passing on the costs to the construction owner to be passed on the paying consumer, under deflation you are continually gaining purchasing power and so the minimum wage will become unworkable and unenforceableWorkers now having increasing purchasing power to purchase the necessities of life and save capital will be able to move up the job ladder sooner resulting in more self employment and less dependence on business owners, deflation creating more owners at the expense of workers (labour renters), leading to social mobility and a highly diverse social strata and property owning society… More owners meaning less workers also means less wages and paid work and more of creating a living, taken to its furthest extent will result in the end of the working wage superseded by fixed priced quotes and specialization of trades and wealth creation…

Deflation by its nature will harmonize working relationships by reducing the owner worker relationship and increasing the owner and owner relationship changing the incentive structure from adversarial to more co-operative, in essence life under deflation is more laid back and less stressful with less of a need to work every hour or chase bucks as the material standards of living are automatically increasing… As a quick example that I have used in previous posts let’s just assume a natural deflation rate of three per cent per annum, which otherwise said currency becomes three per cent more valuable per annum or that the costs of living are coming down three per cent per annum, well extend that three per cent per annum over ten years and we are talking a thirty per cent increase in the standard of living in a decade! To think of this another way, in ten years you will have to work a third less in order to maintain your standards of living, thirty percent more living than working, and this applies across the board to everyone that holds currency over all other goods exchanged… The stronger the deflation the stronger the increase in purchasing power and living standards of the productive citizen

Deflation – Winners And Losers

The winners during the last fifty year inflationary boom have been what I dedicated the first half of this post to, the banker, the bureaucrat, the beancounter, the corporation and middleman by skimming off, regulating, and pillaging the losers, that of the private and productive citizen that has been killed by inflation, taxation and regulation of his life and liberty… However with the collapse of centralization and inflation and the explosion of decentralization and deflation these roles naturally become reversed… With a deflating and distributed currency underpinning both the voluntary exchange of information and peer to peer trade, the technological rebellion will consume the banker, the bureaucrat, the beancounter, the corporation and middleman and all their skimming operations… The old inflationary system penalized and in many cases criminalized production and saving while incentivized artificial consumption and the taking on of crushing debt, while under the coming deflation this artificial consumption and debt will be mercilessly purged highly incentivizing production and saving, BUT with rising purchasing power making consumption more affordable and increasing material standards of living in the process… As Bitcoin and Blockchain Technology lays waste to the old centralized order in the next decade vast swathes of society will be rendered obsolete in the “producing” of law, money, accounting, and national and local administrative bureaucracy that comprise approximately sixty per cent of today’s economy, so the unproductive will be forced toward productive ventures while being incentivized to do so by rapidly deflating currency and increased purchasing power of the same currency

The winners and losers in terms of the generational clash of Boomer versus Millennial will also tip in favour of the millennials as we transition to deflation, with the inflated property values that the boomers have enjoyed this last generation (that has also destroyed home ownership and family formation among Gen X and Gen Y) being consumed by deflationary forces as producing and saving (hoarding) money will become more valuable that the corresponding property and assets of society… As I described in my Bitcoin Adoption Demographics post it is the Boomer that has the vested interest in the continuation of this monetary system as they retire and become consumers of the system that they have paid into all their lives… However it is the Millennial that is expected to continue to produce into a system that gives them no interest what so ever for saving, makes them poorer over time in purchasing power and in fact incentivizes them to consume and become indebted for the simple costs of living, it is also the millennial that is generally more tech savvy in the use of digital technology that will scale deflationary and decentralized currencies world wide, so it obvious to me that the millennials will ditch the fiat system that is impoverishing and indebting them for a deflationary system that enriches them first, leaving the Boomers consuming from a ponzi scheme that has run out of greater fools to pay into, suffering rapid currency devaluations and debt default that will be in many ways unfair… With the millennials generally being holders of money and the Boomers generally the owners of the property in society, then over the next generation this relationship will harmonize with the exchange of currency and property between millennials and boomers equalizing ownership between the generations leading to sustainable ownership and capital formation which is what a prosperous future demands…

Conclusion

This has been one of my most personal and long rambling posts for the simple fact that I have spent and worked the last fifteen years in the construction industry, working on both the professional consultant and building contractor side, so I have at first hand witnessed the dedication, ingenuity and downright hard work of parts of the industry but regrettably also the rise of corruption, regulation and get rich quick merchants on the other… I have watched the increasing divide and divisiveness between building employer and worker due to increasing regulation and welfare requirements put upon the industry by the impoverishment created by an inflationary monetary order, as the construction industry has become the poster boy for adversary, cost over runs, ridiculously short construction project duration, broken promises and increasing waste, environmental destruction and unsustainability and the rise of ugliness both in architecture and construction methods and finishes… All the ills that befall this critical industry for the general well being of the human population are only symptoms of the larger malaise that is a direct result of money manipulation that afflicts all aspects of all sectors of the economy as all of the economy exchanges in the same money, when the money is corrupt then society and all its members are corrupted resulting in what we see and despair at today

So by the same token if a corrupt money destroys all aspects of society, then honest and sound money cleans up all the ills of society, and construction within itDeflation is a paradise and virtuous spiral of increasing purchasing power (and living standards) and the valuation of money above property, leading to more affordable property values for those who need them most, the poor and the young for a leg up on the property and social ladder for productiveness and enriching lifeAs money become more valuable, physical property becomes less valuable incentivizing the dishoarding of property and promoting distribution of property ownership which in turn increases the strength and security of the glue of social order as more of society become property owners and therefore have a bigger stake in the protection and security of private property, deflation in short is an in built free market mechanism for societal stability and social order, meritocracy and social mobility… From chaos to order, will be brought about by the laws of economics in the form of deflation over the next ten years that will continually and mercilessly purge unsustainable debt and consumption and will again instill in the working population the need for productivity and saving with money as the transmission vessel translated through deflation into rapidly increasing purchasing power and standards of living and the hoarding of money over property… In conclusion, deflation is the end of impoverishment and stress and the beginning of enrichment and a far more laid back standard of lifeDeflation and the role of currency as the servant and enricher of all society equally means you spend less time working and more time living with family, friends and community that is the peace stability and mental health of society no matter where you live… Enjoy the ride to get there…

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5 thoughts on “Housing Bubble Collapse, Debt Default, And Life In Deflation – Paradise Found

  1. So in a deflationary environment both Bitcoin & PMS will do well value wise. Can you expand on what that will mean for PMs. What happens to fiat system? How will PMs be proved and in what? Is not Bitcoin a risk since it’s really cyber and can be vulnerable?

    1. PM’s are currently legislated out of exchange by Legal Tender (The Federal Reserve Note) and heavily manipulated through paper gold derivative exchanges (COMEX and LBMA). When the precious metals are used in exchange again, they will have to be repriced far higher to reflect this. I think that gold and silver manipulation will end with the dethroning of the Petrodollar Global Reserve Currency (and COMEX gets obsoleted as a gold fixing benchmark). For how gold and Bitcoin/Blockchain will work together, I wrote this over a year ago: https://annrhefn.wordpress.com/2015/11/01/gold-and-the-blockchain-the-digital-gold-standard-on-steroids/

      For Fiat banking and Bitcoin/Blockchain see this: https://annrhefn.wordpress.com/2015/12/06/bitcoin-kills-banking-how-it-happens-and-why-it-will-happen/

      Bitcoin is eight years old and has been hacked every day since inception and has revealed weaknesses but has never been compromised (only exchanges operating on the Bitcoin blockchain have been compromised). These hackers do Bitcoin a service by revealing these weaknesses so that the Bitcoin ecosystem knows what vulnerabilities that need to be worked on, and why I call Bitcoin antifragile. The SWIFT interbank system has been hacked a few times in 2016, this has never happened to Bitcoin. So Bitcoin is already way safer than the biggest Fiat interbank network: https://www.rt.com/business/340958-swift-banks-fruad-warning/

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