Real estate is how ordinary people have stored value and ultimately accumulated wealth. Indeed, post World War II societies all but demanded access to credit through politics, and governments responded with in-kind favors to keep power. Compounding of easy, loose money spurred decades of growth in housing construction, materials, land, and requisite financial products. This, in turn, triggered the Business Cycle, and the basis for entire economies was exposed as theft and fraud. Bitcoin might be the chance to starve parasitical redistributive governments, ushering in an entire new way to build equity.
Real Estate as Malinvestment
The dean of the Austrian School of Economics, Ludwig von Mises, wrote extensively of malinvestment. Though kept alive in fringe American paleoconservative circles, and as libertarianism’s cult favorite economist, the notion hadn’t gained much popular traction until the US Great Recession of 2008.
My guess is he’s poised to make another appearance in the coming years.
Malinvestment starts the Business Cycle, that boom and bust you’re probably all too familiar with, according to Austrian theory. Central banks are its main culprit. Their monopoly of the money supply has created what is called fiat currency: a paper or digital money backed only by the full faith and credit of a given government. It is without restraint other than inflationary pressure, which governments for over a century have battled using central banks.
Inflation acts as debasement, enabling more tickets or digits to circulate than might otherwise under a sound or tight money, and it is a chance for politicians to promise goodies such as housing guarantees. The trade-off is to keep dollars, pesos, and won flowing enough to produce a wealth effect but not so much that government units of exchange become useless.
Central banks can then artificially slow the rate of fiat through the price of money, interest rates. It’s a faucet, controlling the flow.
Malinvestment is the inevitable result. Even with the myriad of tools available in our present age, you’d think someone crazy if they told you they could predict economic production levels, adequate investment allocations, research and development, etc. Yet that is what a central bank essentially does.
By socializing housing’s risk through mortgage guarantees, while privatizing profit, central banks signaled to property speculators, land holders, construction companies and equipment providers, brokers and investment funds that this industry was a “winner.” It created a classic moral hazard. Producers then dedicated resources and time toward housing because customers on the retail side were armed with hundreds of thousands of dollars in risk-free incentives.
It was simply a matter of time before markers were called on outstanding loans of credit, and creative financial instruments, which would have never existed otherwise, were revealed as hustles to take advantage of political cynicism…
Read Full: Buy Bitcoin, Not Real Estate