Keeping the real value of your paper wealth

One way I look at real value is how many hours of the median workers wages does it buy.  Right now in the SE a home is basically an entire lifetime after-tax earnings of the median British worker.  35 years * 50 weeks * 40 hours per week * say £8 an hour = £560,000.  The median detached in greater London went for £850,000 last year.

Basically how do you keep that claim on other peoples labour.  Of course it gets more complex when you look at things like Bangladeshi workers competing for your money who make 1/50th what British workers do.  Now holding that labour value becomes extraordinarily powerful. 
If you owned a house free and clear in London and sold it and managed to keep that value of claim against Bangladeshi labour.. you have a claim of 50 lifetimes of labour. 

Re-rise of the deflationistas

I was one of the die hard deflationistas, predicting that we'll never see >1% base rates in any of our lifetimes again. And that the government would be printing money to battle deflation. However I did not expect the government to print hard enough to cause a 5% inflation.

I also knew there was serious systemic problems in our economy causing price inflation, besides monetary reasons. Like growing regulatory burden, cartelization, corruption, choke points, etc..

So when the 5.5% inflation came I had to back down from the deflationista argument, except I still stuck to the printing and base rate parts of it. It is not like they created inflation by having heavy consumer demand coming into the economy and bidding against each other for a limited supply of goods. This is an alarming inflation with a fall, even collapse in consumer spending.


But now I am starting to see signs of deflation re-emerging. Despite the authorities trying everything to put their beloved credit bubble, Humpty Dumpty back together again.. with falling incomes, rising unemployment, other factors are overwhelming them.

First off for younger Brits >50% of their monthly after tax income is going to housing costs. Clearly housing costs are falling. Even though the authorities are censoring any information showing declining nominal house prices. If people are unemployed no matter how much propoganda they are bombarded with they cannot pay £450,000 for a small detached house. The standoff where sellers never sell, just put the thing for sale at unrealistic prices will eventually end.


Secondly look at what is happening to the big boxes. They are seeing outright declines in yoy sales. And these are nominal numbers, so horrific/historic falls in inflation adjusted yoy sales. And they are now being underbid by super discount chains like poundland. Also immigrant merchants with low overheads are hawking imports for surprisingly low prices. The big boxes have said they are going to respond with a price war. Which they have to, because their market is starting to evaporate.

I was shopping with a lady friend of mine who doesn't have much money. And she did her shopping for under £10 at a pound store. Toilet paper for under a pound, all these brands I had never seen before in my life. I remarked to her, this is the convergence where British prices converge with Asiatic prices in the global market. Our idiot leaders wanted it both ways, they wanted British wages to converge with Asiatic wages, but for British prices like house prices to keep inflating. = profit.

This convergence can play out for years. Because right now we are still paying 10x the Asiatic price for things. Yet our workers are being forced to compete 1-1 on the global marketplace. It is so blatantly obvious where this will end.. the lowest cost producers will triumph.


The big boxes now are going to occupy the mid-level in British retail. Now that the high street died a bloody death, the ultra high end, with the new entries taking the low end.


Thirdly the interesting phenomenon of the Food Trucks. British consumers simply cannot pay for the overheads of a McDonalds. The premises, the endless management chain, advertising, middle men, etc.. Its not even a question anymore of wanting to, if you cannot afford it you cannot. Like in retail, new entrepenuers are coming in and providing a service at a cost customers can afford. Cutting out the middle men.

Factors in the rising unemployment

Its hard to look at one industry in isolation because even if it falls to nothing in employment, if the cost of its service is much lower, presumably people in the economy have extra money than before and spend it elsewhere. 
But if you look at the economy as a whole it is blatantly obvious that we are losing jobs in net.  About 125,000 a quarter like clockwork for the last few years. 

The question then is why are we losing jobs in net. 
-There clearly is insane over-regulation that is choking off business
-There is the effects of globalization -although here libertarians argue that it cannot have a net effect because when we buy something from China in £, the Chinamen then have pounds they have to at some point use.  Whether it is buying British products, or investing capital in Britain.
-Technological job loss - this idea is just entering mainstream thought.  Before it was simply dismissed as Luddite paranoia.
-Monetary issues - This is the idea that the western world has latched onto.  That the job loss was from a lack of credit in the economy.  There is some truth to it as well.  But Britain's experience has really called into question this theory.  We managed to get into a strong inflation of 5% and monetary theory is that it should lead to overheating in the economy, but a low unemployment rate.  Yet the net job loss still ticked along at 125k a quarter.

Incentives in our Society

I was talking to a woman and she was telling me about her back problems. Allegedly a disc pops out of alignment, and the chiropractor puts it back into alignment. But she has to go once a week for a visit to the chiropractor, or else her back starts getting sore again.

So I asked her, why does the chiropractor not push it in so it stays in alignment? Then I felt stupid because the answer to that question is obvious. If the practitioner actually cured the problem he would not be able to make a career out of it. Right now he only needs about 100 or so regular customers to have a thriving little business, that puts food on the table for his whole family and pays all his costs for a lifetime.

In my utopia this man would cure people for good. But he would not be able to make a career out of it. So there would be no professional expert to go to if you needed help. He would be stacking shelves at Tescos. Even if he somehow knew the knowledge finding out about him would be near impossible, as there would not be enough money to market it. Now back issues might not be the end of the world, but realize the same is true across all human health areas, and indeed all areas of society.


You might think well this is a problem with capitalism. Which is true. But it is also a problem with socialism. The NHS and its contractors now employ 10% of the population of Britain. With that growing every year. They rarely cure anything, only treating symptoms, that is if you keep buying drugs, getting tests, going for operations and visits on an ongoing basis. Look at all our bureaucracies they never cure anyting. If they ever did they would be out of a job.


Another of the countless examples if the housing administration in Britain, to help people afford housing. Yet everything they do is to make housing unaffordable.. which keeps them employed.

Young generation and house prices

On a fundamental level in Ireland, US, UK.. the future buyers are the younger generation. And at least 30% of them are unemployed with that rising every year, and another 30% at least make less than 10 pounds an hour. So at least 60% of an entire generation will not be buying a home ever.


Add in rapidly rising basic utilities and food costs. And add in declining wages and the future demand side becomes even weaker. Even at 160,000 Euros in Ireland for the median, it still seems unlikely the young generation will be able to buy those. All though we are closer now than when prices were 380,000 Euros back in 2007.


Where I could possibly see an equilibrium is when Ireland median house hits 50,000 Euros.

America and the growth of bureaucracies

Expand

What we see happening to America is all these bureaucracies and associated contractors are propelling growth of their area with no regard for the greater good of the society.

Every year the defense department wants to expand its budget and scope.
Every year the prison system wants more prisoners and more money spent per prisoner. Bot the private and public prisons want to expand, along with their unions.
Every year the medical industry wants to grow revenue with no regard for whether this benefits patients.

Education is yet another example, the USA is now spending more per student on education than all the major European nations. But because education is seen to be failing the cries are for more money to the system.

I had to laugh in my area one of the politicians was quoting a police official saying that we need to spend more on policing. Roofer arguing we should spend more on roofing.

At some point the nation needs centralized leadership who thinks about the big picture. But that seems a long way off.

Super Genius Productivity

One super genius programmer who creates a better mousetrap which say gives a 5% productivity improvement across 200,000 workers in a specific job around the entire globe.. that super genius has godlike productivity.

It is also a permanent increase. His advance is not just 200,000*5%*average wage... its the net present value of the future savings of that forever. Then next year he can work on the next 5%.