Prisoners Dilemma and Boom&Bust
Bank of England prints new money, up to 20% of the money supply.
Stock market rallies hugely, on thin volumes of trading. Well, that at least has some merit, given quite how far it had fallen.
— But —
an unheard-of 18% fall in investment! A nominal fall: against what should have to be a 20% rise to retain its value in real terms! The productive economy is dropping out of competitive measures other than cost-cutting (notably staff costs).
And that 20% of new money gets soaked up by housing, where the price crash has halted since the spring, again on low numbers of transactions!
It’s a prisoners dilemma: do individuals use their money for the overall good, or for personal gain? In a healthy society, the two would be, well, if not fully aligned, then at least not in stark opposition to each other.
You take out a big mortgage, get security, big tax breaks, and government bailouts if you lose your job. You rent and save for a house, you get poor security, and you have to live on the savings (including investments) if you lose your job. So here’s the prisoners dilemma: if the job’s not secure, get the biggest mortgage you can, and put those savings into a house!
Repeat over lots of prisoners-dilemma-victims and the economy takes a real hit: the tax-and-benefits system has hobbled it. Not once but twice: the money sunk into a house is not being invested in the productive economy, and the homeowner has lost flexibility to move!
It seems to me we’re on a timeline with this escalating boom&bust:
2005: house prices take a small fall, quickly “corrected” by low interest rates, ~15% underlying inflation (M4 money supply), and pouring public money in.
— leading to —
2007: lenders start going bust
2008: house prices take a bigger fall, “corrected” at mindblowing expense to the economy
— leading to —
2010? government starts going bust
2010/11? house prices take a proper collapse, taking the currency and much else with them.
What to do about it? Well, emigrating again has appeal. Short of that, I’m putting ever more of what I have into assets that derive value from outside the UK.
 and counting, until they pull the plug on Denial.