Anarchist World this week on 1.Ukraine 2.Cannibalising foreign skilled workers 3.Qld floods 4.Corporate capitalism

In 1881, two years after his book Progress And Poverty was published, American theorist Henry George said at a meeting (paraphrasing): Speculation is surely a part of the equation as to why real estate prices rise (say thanks to those who build properties in places like New York to house immigrants until they could save enough to purchase their own homes). However, he believed, the rises should be a reflection of productivity.

Prior to the mid-1980s from America to Australia, what Henry George asserted a century earlier held true. However, over the past 20 years, particularly so in the last decade, the speculative attribute has become the foremost aspect of the equation that has forced real estate prices to rise. But what is most intriguing, and demonstrable since 2010, is that it sits on the timeline when wage increases have flattened.

Astonishingly, real estate prices have risen about 22% from October 2020, through to January 2022, when the country was locked-down with corona virus. This big increase took place when productivity was sluggish due to the lock downs. This has been exacerbated with people being able to borrow money at low rates of interest. The fusion of these elements has culminated with people borrowing staggering amounts of capital to buy properties. With the result being that Australia has become a massive Ponzi-scheme!

On February 7, economic writer Alan Kohler, wrote on the insanity of real estate: ‘Australia is an over-borrowed building society’. Kohler tells us about the rise and demise of the Pyramid Building Society. You can gain the whole picture of this tale by googling up Pyramid’s profile. However, although Pyramid was established in 1959, it was not until 1983, when its board ramped up borrowing more capital. But when real estate prices declined, it was left holding under priced assets and went broke on July 1 1990. The uncomplicated reason for its demise was because it had borrowed way too much capital. Thus, when the music stopped it couldn’t find a chair and went bust.

Kohler writes: “Oh dear, that’s what Australia is now: A permanent building society that has borrowed too much for expensive properties (and) is now facing higher interest rates.”

Kohler also gave his opinion of what the Governor of the Reserve Bank of Australia, Phillip Lowe, said at the Press Club meeting on the economy (February 5):

“In my brief spot on 7.30 that night, I called it an extended shrug of his shoulders to the threat that rising interest rates will bring to bear upon borrowers already hocked to their eyeballs in debt.”

Essentially, what Kohler’s suggesting that Lowe and the RBA’s board, neither knows what is going to happen or, more to the point, as to exactly what they are going to do about this conundrum facing them: a), whether to raise interest rates to curb inflation ; or b) to sit tight with the 0.01% rate; because of the disaster that it would ensue for mortgagees having to find at least $400 per month more to service their loans. Obviously, the latter scenario would spawn a dire scenario that would seriously afflict the ability of low-income earners to meet their increases in mortgage commitments.

Kohler gives us data on the household debt to disposable income ratios of 1989 and 2022, informing us that it has:

“tripled from 0.6 to 1.8 times”.

Of course, circumstances are much different now in 2022, than what they were in 1989. For instance, official interest rates back then were 18%, as opposed to the low 0.01% currently in place. However, when interest rates inevitably have to rise and, for argument’s sake, they get to just 1.5%, it means the minimum amount of money needed to cover an increase in mortgage repayments will be around a minimum of $400 per month.

But, providentially (sic), for at least for the next two months, the war in the Ukraine has presented Phil Lowe and the RBA with an excuse to hold off on raising interest rates. Alas, after that time, Lowe and the RBA won’t be able to continue dilly dallying around with indecision on raising rates.

But inevitably, whether it is Phil Lowe of the RBA or Jerome Powell of the US Federal Reserve or the Bank of England etc, etc, the confluences of the war in the Ukraine and inflation will soon bear upon the big picture and force central banks to bite the bullet. Which means they will have to raise interest rates and, quite likely, it could also see the reemergence of stagflation once again - to further complicate an already complex scenario.

Are we witnessing the collapse of globalism?