Best of the Week
Most Popular
1. Climate Change Mass Extinction - Birds, Bees and Bugs: Going Going Gone - Richard_Mills
2.A Purrrfect Gold Price Setup! - Peter_Degraaf
3.Who Finances America's Borrowing? Recession Indicator for Independent Thinkers Part 2 - F_F_Wiley
4.America’s One-sided Domestic Financial War - Raymond_Matison
5.Gold Price Summer Doldrums - Zeal_LLC
6.Two Key Events Will Unleash Gold - Jim_Willie_CB
7.Billionaire Schools Teacher in NAFTA Trade Talks - Richard_Mills
8.Get Out Of Crypto Cannabis Bubble Before It Pops and Move Into Bargain Basement Miners - Jeb_Handwerger
9.Stock Market Could Pullback for 1-2 weeks, But Medium Term Bullish - Troy_Bombardia
10.G7 Chaos, Central Banks and US Fed Will Drive Stock Prices This Week - Chris_Vermeulen
Last 7 days
Trumponomics Stock Market 2018 - The Manchurian President (1/2) - 21st Jul 18
The Death of Japan's Real Estate Dream - 21st Jul 18
SMIGGLE Amazing Mega Shopping Haul, Pencil Cases, Smigglets and Giant Back Packs! - 21st Jul 18
Cayton Bay Beach Caravan Park Holiday - What's it Like? - 21st Jul 18
Gold Stocks Investment Wanes - 20th Jul 18
Diversifying Your Stock Investing Strategies is Smart Investing - 20th Jul 18
Custom Global Stock Market Indexes May Be Sounding Alarms - 20th Jul 18
S&P 500 Just 2% Below Record High, But There's More Stock Market Uncertainty - 19th Jul 18
Stock Market Technical Picture - 19th Jul 18
Gold Market Signal vs. Noise - 19th Jul 18
Don’t Get Too Bullish on Gold - 19th Jul 18
Bitcoin Price Rallies to Upper Channel – What Next? - 19th Jul 18
Trump Manchurian President Embarrasses Putin By Farcically Blowing his Russian Agent Cover - 19th Jul 18
The Fonzie–Ponzi Theory of Government Debt: An Update - 19th Jul 18
Will the Fed’s Interest Rate Tightening Trigger Another Financial Crisis? - 18th Jul 18
Stock Market Investor “Buy the Dip” Mentality is Still Strong, Which is Bullish for Stocks - 18th Jul 18
Stock Market Longer-Term Charts Show Incredible Potential - 18th Jul 18
A Better Yield Curve for Predicting the Stock Market is Bullish - 18th Jul 18
U.S. Stock Market Cycles Update - 18th Jul 18
Cayton Bay Hoseasons Caravan Park Holiday Summer 2018 Review - 18th Jul 18
What Did Crude Oil - Platinum Link Tell Us Last Week? - 17th Jul 18
Gold And The Elusive Chase For Profits - 17th Jul 18
Crude Oil May Not Find Support Above $60 This Time - 17th Jul 18
How Crazy It Is to Short Gold with RSI Close to 30 - 16th Jul 18
Markets Pay Attention Moment - China’s Bubble Economy Ripe for Bursting - 16th Jul 18
Stock Market Uptrend Continues, But... - 16th Jul 18
Emerging Markets Could Be Starting A Relief Rally - 16th Jul 18
(Only) a Near-term Stock Market Top? - 16th Jul 18
Trump Fee-Fi-Foe-Fum Declares European Union America's Enemy! - 16th Jul 18

Market Oracle FREE Newsletter

5 "Tells" that the Stock Markets Are About to Reverse

When Does Government Policy Become Criminal Behavior?

Politics / Government Intervention Apr 24, 2014 - 03:41 PM GMT

By: Raul_I_Meijer

Politics

That’s always a hard question to answer. At what point does government policy become criminal? Since governments make the laws, perhaps never. But then again, countries tend to have constitutions, and government actions can violate those. Still, before you know it, you get trapped and stuck in lawyer lingo limbo, and that’s not what I’m looking for. I’m wondering to what depths a government can go in its actions vis à vis it own people. So maybe I should rephrase this, maybe a more relevant question would be when government policy becomes morally repugnant. There I sure have a few candidates.


The Guardian reports on a study published this week, entitled Wars in Peace, and published by the Royal United Services Institute (RUSI), which states that Britain’s post-cold war peacetime war efforts will cost more than $100 billion (I guarantee you that’s still a conservative number). Almost half of that is needed to treat the veterans of the wars in Iraq and Afghanistan. Why have these wars been fought? Who knows. Have they been useful in any way? I would have to say I think not, because the study says “the bulk of the money has been spent on interventions judged to have been “strategic failures”. And “there is no longer any serious disagreement” over how the UK’s role in the Iraq war helped to increase the radicalisation of young Muslims in Britain. “Far from reducing international terrorism … the 2003 invasion [of Iraq] had the effect of promoting it … ”

To get there, the British and American troops, plus a ragtag small band of others present only to give the efforts an air of legitimacy, killed 100,000 Iraqis and sent 2 million fleeing from their homes. And now almost $50 billion will be needed to supply long-term care to the wounded and traumatized British veterans who killed and maimed them. I find it easier to understand why American society doesn’t go after Bush, Rumsfeld and Cheney (though I think it’s ludicrous) than why Britain doesn’t go after Tony Blair. The only plausible reason is that many of those who supported Blair when he sent Britain’s young and promising, the future of the nation, into desert hell-holes to go and kill the foreign man, only to return as mental if not physical cripples, are still in power today. In both countries, it’s been more than sufficiently established that both people and parliaments were served blatant lies. That fact that even parliaments don’t dare fight back tell you all you need to know about the level and extent of democracy in the Angle-Saxon world.

In this same vein, there is something else I read this morning that first made me wonder about governments and criminal behavior. Bloomberg:

UK Return To Loans for 95% of Home Value Seen as Risky

With U.K. home prices rising at the fastest pace since 2010, banks are making more high loan-to-value mortgages. The number of loan products available to borrowers with a 5% deposit has tripled to 132 since the government in October extended its Help-to-Buy program, which assists buyers with down payments on new homes [..] These higher risk loans are similar to those that spurred the U.K.’s property crash in 2008, when [..] home prices fell 17%. Today, with just 5% down, borrowers may later find themselves underwater, owing more on their properties than they are worth, said Rob Wood, a former BOE economist. “Small falls in house prices can push them into negative equity,” said Wood.

Prime Minister David Cameron’s support for homebuyers is boosting the economy before next year’s national elections. Help to Buy allows purchasers to take out a mortgage with a down payment of as little as 5% for a home costing as much as 600,000 pounds. Willem Buiter, an external member of the BOE’s rate-setting committee from 1997 to 2000, said earlier this month that encouraging people to take out higher loan-to-value mortgages is bad policy and the market is overheating. “If it’s a bubble, we’ll be able to tell after it pops,” he said at a briefing in London. “If it isn’t one, it sure looks like one.”

Seen as risky, says the headline. Yeah. Well, I see a government returning to subprime loans mere years after many people lost their shirt on their homes as criminal. Or make that “morally repugnant” if you will. Help to Buy is not helping the British people, other than to put their heads in a noose. Cameron is very aware of this, just as Blair and Bush knew many of their young soldiers would never return in one piece. Same difference.

As for Buiter’s “If it isn’t a [bubble], it sure looks like one,” we already have the answer to that. It’s what David Stockman has aptly christened “Canary-On-Thames”. Stockman cites Brett Arends at Marketwatch, who in “Ominous Signs For London Real Estate” notices that while house prices are still rising in London, rents are falling. Stockman writes:

In the attached survey of soaring real estate prices in Prime Central London [Brett Arends] does not bother to marvel at their near vertical ascent – up two-thirds in the past five years and 2X in the last decade – or enumerate the various sheiks, oligarchs, moguls and potentates who have converged on the posh precincts along the River Thames. Instead, he goes straight to an apparent anomaly: While property prices are soaring, rents are falling. During the past year, for example, property prices in Mayfair are up 5%, but rents are down 8%. Likewise, in the area north of Hyde Park, prices have risen 10%, while rents have fallen by 8%. Overall, rents peaked in 2011 in Prime Central London, and have been slowly falling ever since.

Needless to say, falling rents are not a sign of scarcity – even in the toniest sanctuaries of one of the planet’s hottest urban centers. Nor are they an endorsement for the real estate brokers’ pitch that central London is different – an irreplaceable treasure of civilization that is immune to the normal laws of economics. What the rent/price anomaly really means is that “yields” or cap rates in central London have been falling drastically. In fact, they are at an all-time low according to Frank Knight – the acknowledged authority on London real estate. From a 10% yield in the mid-1990s, cap rates had fallen to 4% by March 2009, and now stand at just 2.8%.

Check any prior property bubble peak – say the Miami condo market in 2006-07 – and what you will find is plummeting cap rates, pushing down into the 2-4% zone. And what you will also find not far behind is a central bank running its printing presses overtime. In short, the economic deformation spotted by Arends is a monetary phenomenon, not a reflection of physical supply and demand or simply the mechanics of the free market at work. The add factor is cheap credit – the marginal source of the “bid” that can keep apartment and townhouse prices soaring even when the units are empty.

What is unique about London is English Law and open borders. So that makes central London not only a haven for so-called “flight capital”, but also the virtual epi-center of a global financial bubble that has been created by the combined money printing exertions of all the world’s major central banks. Stated differently, the monumental global expansion of cheap credit since the turn of the century – up from $1 trillion to $25 trillion in China alone – has caused a huge inflation of real estate and resource values all around the planet.

Yes, this means that the Cameron/Osborne Help-to-Buy bubble is already well past its best-before date. Even if thousands more foreign buyers high on cheap credit and shady deals may flock in before this city-of-cards comes tumbling down. What Downing Street 10 will have done is to dislocate huge numbers of Londoners unable to keep up with rising prices, and fool many many gullible thousands more into signing up for the property ladder only to to be unceremoniously kicked off with huge debts tied around their necks.

There are those who would argue that in financial systems and “free” markets, those who don’t pay attention get fleeced, and that this has a function. But for a government and central bank to push and advocate this sort of development, just to look better for a short time, is a whole different story. Not a day goes by that I don’t hear and read yet more about the miraculous recovery Britain has accomplished for itself. Hail Cameron! Well, reading the above, you, like me, may have an pretty clear idea where this is going. My advice to the British people: take ‘em to court, let them explain how the upcoming disaster came to be, and even if the law says it doesn’t constitute criminal behavior, make sure to let ‘em sweat. So the next set of doofuses will think twice before trying it again.

Obviously, there are very similar “miraculous recovery” stories doing the rounds about the US. And for very similar reasons. Try New York real estate prices. Nevertheless, both existing and new home sales numbers that came out this week spell it out as clear as you can wish it to be: the US housing recovery is dead. Falling sales, construction dead in the water, the works.

I read something toady to the extent that “100% of experts polled agreed that US interest rates would start rising significantly this year”. I’ve said it many times before, and I’ll say it again: GET OUT! You’re not all going to be among the 1% of people who beat the markets. Go find something more useful to do with your time and your money and your life than to spend it all in this cheap credit casino that was constructed specifically to take it all away from you.

By Raul Ilargi Meijer
Website: http://theautomaticearth.com (provides unique analysis of economics, finance, politics and social dynamics in the context of Complexity Theory)

© 2014 Copyright Raul I Meijer - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
Raul Ilargi Meijer Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules