Boom-bust: house prices, banking and the depression of 2010

305 Pages·2010·1.003 MB·English

by  Harrison, Fred

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Boom Bust
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Boom Bust
HOUSE PRICES, BANKING AND
THE DEPRESSION
OF
2010
Fred Harrison
SHEPHEARD-WALWYN (PUBLISHERS) LTD
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© Fred Harrison 2005
All rights reserved. No part of this book may be
reproduced in any form without the written permission
of the publisher, Shepheard-Walwyn (Publishers) Ltd
First published in 2005 by
Shepheard-Walwyn (Publishers) Ltd
107 Parkway House, Sheen Lane
London SW14 8LS
Reprinted 2005
Paperback reprint 2007
2nd edition November 2007
2nd up-dated edition January 2010
British Library Cataloguing in Publication Data
A catalogue record of this book
is available from the British Library
ISBN-13: 978-0-85683-254-3
ISBN-10: 0-85683-254-5
Typeset by Alacrity,
Chesterfield, Sandford, Somerset
Printed and bound through
s|s|media limited, Wallington, Surrey
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Contents
Acknowledgements vii
Preface to the Second Edition ix
Prologue xi
PART I
AS SAFE AS HOUSES?
1 Britain’s Housing and the Business Cycle 3
2 Banking on Failure 21
3 The American State of Virtual Reality 38
4 The Incredible Alan Greenspan 54
PART II
GENESIS OF THE BOOM-BUST CYCLE
5 Rent and the 18-Year Cycle 73
6 The Patterns of History 100
7 The Alchemy of Land Speculation 119
8 The End of Boom Bust? 135
PART III
ANATOMY OF THE FIRST GLOBAL CYCLE
9 The New Economy: Selling an Anglo-American
Myth 155
10 Launched in the USA 168
11 Gordon Brown’s Magic Mantra 185
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PART IV
THE AUTOMATIC STABILISER
12 Counter-Cyclical Action 207
13 Australia: The Pathology of Taxation 226
14 Dividends from Democratised Finance 246
PART V
THE RECKONING
15 2007: From Peak to Downwave 265
16 2010: Economics of the Debt Junkie 274
Index 282
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Acknowledgements
IT IS WITH PLEASURE that I take this opportunity to thank those
who helped me to bring Boom Bust to fruition. In particular, my
gratitude is extended to Mason Gaffney and Ron Banks for their wise
counsel over the years; Ed. Dodson (USA) and Bryan Kavanagh
(Australia) who generously shared with me the results of research in
their countries; and Don Riley for stepping in with material support at
a time when I most needed it. My publisher Anthony Werner has been
a relentless source of constructive criticisms, and Anne Morrell bore
with fortitude the tedium of correcting what seemed like an endless
stream of revisions. No words, however, can adequately express the
debt I owe to my wife, Rita, whose moral support and editing skills
were indispensable in bringing this volume to a conclusion.
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To Rita
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Preface to the Second Edition
WHY, THE Queen of England wanted to know when she
visited one of her pre-eminent schools of learning, hadn’t
anyone seen the financial crisis coming? No-one saw it
coming, replied Professor Luis Garicano of the London School of
Economics, because ‘At every stage, someone was relying on some-
body else and everyone thought they were doing the right thing’.
Some people had seen it coming. My first warning was published in
1997, in The Chaos Makers, a thesis elaborated in 2005 in this book. I
specified when the business cycle would come to an end, the causes
that would terminate growth and employment, and the severity of the
crash.
Now we are being assured that it is not going to happen again. The
presidents and prime ministers of the G20 countries who met in
Pittsburgh in September 2009, promised a future of ‘balanced growth’.
The surreal terms of their communiqué mean that the next land
market-led boom will end in 2026 with an even more painful bust.
Governments are restoring the status quo: there will be no change to
the rules that cause the economy to break down, time and again, like
clockwork.
That, of course, is not the authorised version of the political
response to the crises. When Barack Obama arrived in Washington as
President, in January 2009, hopes were raised that, this time, there
would be change – Obama’s election campaign mantra. The adminis-
tration would prevent the US tipping into a depression.
Obama adopted a $787bn fiscal stimulus plan, as Larry Summers,
director of the White House National Economic Council, warned
that the US was locked into the worst downturn since the Great
Depression. UK output fell by more than 5% in 2009 – a crash in pro-
duction last seen in the 1930s. Commentators openly acknowledged
that Ireland and Spain were in depression. But, otherwise (claimed the
forecasters), for much of Europe there were glimmers of ‘green shoots’
of recovery.
When does a recession turn into a depression? A recession is
defined as two quarters of negative growth. By the autumn of 2009,
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