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Inflation, Interest Rates & House Prices · Acedra
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Inflation, Interest Rates & House Prices
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0:00
imagine you gave your house and all of your assets everything you own
0:05
to some rich guy and then you took a massive loan from him and you gave the money back to him so now you're in debt to him he owns everything how can you not be poor and the answer is: you can't!
0:20
all right so today we're going to do a nice educational one uh topical about the main issues which people are worried about today that we get asked about a lot which are inflation, interest rates and house prices often viewed I think as 3 separate concerns but they're very very linked they're very related so I think if we cover all 3 of these and the way they're related it can really help people to understand how the economy works and what's happening now right
0:47
so we're going to start with inflation so the first thing is we've covered this before but I'll go over it quickly I believe and I've said this many times on the channel, that the inflation was largely caused by the enormous amount of money given out by this government and governments all over the world during Covid uh the amounts are truly enormous £700billion in this country (UK) which is 14,000 pounds per adult, eight trillion dollars in the US which is about 30,000 dollars
1:15
per adult huge amounts of money given out that amount of money has to end up somewhere ends up in the bank accounts of private individuals largely wealthier private individuals which means huge huge, nobody is denying this by the way this is generally accepted, enormous accumulation of cash by richer individuals in the last three years during Covid which is the reason why I said in the first video on this channel that when we come out of Covid we will probably see a
1:42
big jump in inflation because there would have been this massive cash accumulation with rich individuals okay um that has not generally been the mainstream media explanation of inflation and they've been generally saying it's because of sort of an anonymous after effects of covid which never really explained in much detail and of course the Ukraine war I'm not denying that the war in Ukraine has caused inflation especially with specifically with energy
2:06
that is a part of it as well but I think a big part of it is this massive cash accumulation during Covid if you give a huge amount of cash out what you essentially do is you devalue the currency because most people especially the rich have huge amount more money, more money going around, they can buy more things, they can push prices up, prices go up and you know we predicted it in advance and it happened! what does that mean going forward okay so if I'm right and
2:32
it was largely caused by this huge amount of money given out by the government you would expect a kind of relatively sharp jump in prices and then for prices to start going up much more slowly because the government gave a huge amount of money out in a short period of time and now they are still running a deficit higher than pre-covid and that is because basically there's been a massive
2:55
increase in poverty since covid because of the inflation which means the government is now forced to for example subsidise people's energy which has cost the government, they're forced to provide more poverty benefits because people are struggling so the government gave a huge amount of money out and now they have to keep giving money up at a much slower rate so what I would expect to happen
3:15
is a big increase in prices and then for prices to keep going up but not at this rapid rate so we've seen the big increase and what I expect happen now is that prices will will slow down they will keep going up because the government is still giving money out but they will not keep going up at the rapid rate so we will see a big fall in inflation
3:35
um almost certainly it's important that people understand that a fall in inflation does not mean a fall in prices right, inflation is the rate of increase in prices so prices jumped a lot they will keep going up but that will slow down massively
3:48
um inflation will probably fall to something like six seven percent maybe even lower this year that is just simply because the government is not giving so much money out the government will try and take credit for that but it's important to remember that if prices are still going up six seven percent a year then you know life is still getting harder life is still getting worse for you and the fall in inflation is really a fall in the rate
4:12
of decrease of your living standards it's not really something for the government to be proud of okay so that's inflation covered for now inflation will probably normalise right I think it's because of the huge amount of money given out that that rich people still have, um
4:24
other people think it's because of other things um let's move on to interest rates so interest rates have risen significantly here in the UK they're up to four and a quarter now (4.25%) financial markets... first thing to say is financial markets think that we are nearing the top now they think that interest rates will probably peak at something like four and a half maybe four and three quarters (4.5-4.75%) which means another just 1 or 2 increases in interest rates this year um
4:51
I suspect that'll probably be right in the short term & then interest rates will start to slowly come down now there's been a lot of discussion about interest rates and I want to talk about this one because I think I think the situation is quite interesting right there's been a lot of criticism especially from the left, people saying what the hell is the Bank of England doing raising interest
5:10
rates um and that's understandable because when the bank raises interest rates your mortgage rate goes up I think a lot of people are seeing massive increase in their mortgage rates it's causing a lot of problems um it increases the interest that the government has to pay on it's government debt government debt is massively increased in the last three years it's very large it's about 100% of GDP I think it's you know something like 30,000 pounds per person it's a lot um they
5:35
have to pay a higher interest rate, if you have a mortgage you have to pay a higher interest rate um and people are understandably super stressed about that right and they're turning around to the Bank of England and they're saying 'well why are you doing this? because you're hurting us you're hurting us you're hurting the economy' and I think this provides opportunity for a really interesting
5:51
discussion so the first thing to say is from my perspective the inflation has been caused by the government giving money out that has ended up with rich people and we discussed this exactly in the first video on the channel where we predicted the inflation right where we said
6:07
if during covid the government is going to give 700 billion pounds to the rich the only way to avoid a crisis in inflation and inequality because that cash distribution increases both of those things, is to take money back from the rich through taxation policy you see that's symmetrical if I give you money then the way to reverse that and avoid the consequences of that are to then tax money from you okay
6:36
but that's not what we're doing right what we're doing is the government has given money out which has ended up with the rich and then rather than taxing money back from the rich the Central Bank the Bank of England is increasing interest rates and this is because economists when they think of inflation they always think of interest rates this is what happens in economists minds if inflation is too high raise interest rates if inflation is too low lower interest rates
7:04
these are like the articles of faith of being an economist they're really connected and they tend not to think in terms of fiscal policy so in economists minds they have these these ideas of two levers that rule the economy one is fiscal policy and that is government taxation and expenditure so during covid the government run a massive deficit that means they spent way more than they taxed, that is what they would call a fiscal stimulus, it's pouring money in in terms
7:32
of government spending that's fiscal policy monetary policies is basically Central Bank interest rates it includes quantitative easing which we've covered before but I think to keep things simple let's just talk about interest rates and that is you lower the interest rate to speed the economy up, you raise the interest rate to speed the economy down it's important to recognise that these are two different things all right and both of them
7:55
can affect inflation so if the government starts spending a ton of money and during Covid most of it's printed money that will push inflation up and if the Central Bank starts slashing interest rates that will also push inflation up but they're different things right and I think the most important thing to understand if you take anything away from this video is that we are clearly using
8:16
the wrong policy to fix the inflation because if we cause the inflation by giving money to the rich
8:23
then the way to fix it is to take money from the rich, if we try to fix it by raising interest rates what does that mean well interest rates are the money that is paid by borrowers in the economy to lenders in the economy and I remember we've covered this on the channel before that for every borrower there is a lender for every lender there is a borrower okay it's always perfectly matched you can't borrow money from nobody, you can't owe money to nobody okay
8:50
so really when the Central Bank raises interest rates what they are doing is they are benefiting the lenders, so who are lenders? lenders are people with large amounts of money who lend money out you know largely it's wealthy individuals you know sometimes it goes through your bank so if you have a huge amount of cash in the bank, your bank lends that money to government, your bank lends
9:09
that money to mortgage borrowers, if you have a lot of money in your pension, your pension fund lends that money to the government, lends that money to mortgage borrowers right so people with large amounts of cash benefit when interest rates go up and the people who lose are people who have large amounts of borrowing which is the government first and foremost and people with mortgages people
9:30
with large mortgages which is largely younger homeowners & also it doesn't include homeowners from rich families who don't have to use mortgages right so when you raise interest rates
9:40
often you are benefiting rich people because they have a lot of cash and your disadvantaging the government and mortgagees; people who have mortgages, that is increasing inequality and it's not as simple as that right because there are some poorer people have all of their money in cash you may feel that they benefit there might be some rich people have a large amount of debt for example I have a large amount of debt as part of my sort of trading portfolio but in general
10:03
when you raise interest rates you're moving money from borrowers which is mortgage holders and the government, to lenders which is rich individuals especially older rich individuals so
10:17
when the government has given money out it's caused two things to happen 1. a massive increase in inequality & 2. a decrease in the value of the currency which we see as inflation if it wanted to perfectly offset that then it would tax the rich back but for some reason, which as you know i'm constantly maddened about, taxing the rich has never really been seriously in the discussion here even though
10:44
we've seen a massive increase in the wealth of the rich, so instead we've gone for the default which is raising interest rates now raising interest rates does increase the value of the currency so the one half of it which is the devaluation of the currency you are fighting by raising interest rates but the other half which was an increase in inequality, raising interest rates makes that worse
11:04
right because you're forcing borrowers who are often not wealthy families, if you're wealthy you wouldn't take a mortgage and the government which means the taxpayer which means ordinary working people because as we know the very wealthy don't pay high rates of tax the taxpayer and mortgage holders have to pay more money to the cash holders which are the people who've accumulated huge amounts of cash during Covid, which is the rich, so in trying to fix with monetary policy
11:33
by the bank of England a problem which was caused the fiscal or taxation policy by the government you've ended up trying to fix a crisis of inequality by more inequality so that that means that the long run situation for the economy and for for inequality is extremely bad but it will succeed eventually in bringing inflation down and this I think is there'll be people who there will be some people who won't like me saying this it will be unpopular
12:04
with some there's been a lot of criticism from the left of the central bank for their interest rate policy they're saying you know why are you raising interest rates it's hurting people
12:13
if the bank of England kept interest rates at zero the pound would have collapsed in currency markets the pound would be worth half of what it is now we'd be seeing an inflation crisis and
12:24
I mean it would be very similar to what happened after the trussonomics disaster in Autumn so I think people who are pointing at the Bank of England (BoE) and saying this is your fault listen I've got no love lost for the Bank of England or Andrew Bailey um I think that they have no choice but to do this, the problem is because the government and the broader economics discussion in the media have said nothing about taxing the rich
12:46
which would be the correct way to fix it, the Central Bank has no option but to raise the interest rates you know if we I think an interesting thought experiment is to sit and think what if we reversed
12:58
the cash distributions of the last three years what if we went to every single person in the top 10% of the country and said we want £140,000 tax that would be a reversal like that it seems crazy but that is what we have done in the last 3 years we've distributed £140,000 to the richest 5 million people in the country each person right so if we took that back you would see a collapse in inflation a massive collapses these people desperately tried to raise that cash right
13:23
so the interest rates had to go up because we have refused to have the discussion about taxing the rich and if you give a ton of money to the rich inflation will increase if you refuse to take the money back the only option central banks have to try and keep inflation is to raise interest rates and it will happen but in terms of looking forward I believe that the inflation will come down when it safely quickly which means that the central banks including the Bank of England,
13:51
the Fed, the European Central Bank (ECB) will stop raising rates relatively soon um I think that once that inflation slows down you will start to see how severe the economic weakness is underneath how big the increase in poverty is and you'll probably start seeing in my opinion interest rates start to fall relatively quickly but that that depends on whether there's a bit of a balance here right
14:12
because because we've seen such a big increase in poverty it creates creates pressure on governments to do more deficit spending and pump more money in & if governments are forced to pump more money in that could keep inflation higher over the long term and I think what you're seeing here is kind of the death throws of an economy which has given up on tax taxing the rich so if you cannot tax the
14:36
rich and the rich have all the assets then you end up in a situation where whenever there's a crisis the rich get a ton of money and you can't get it back so the only option you have is to raise interest rates and that causes more poverty which means you have to give more money to the rich it's a question basically you're trying to solve the question of how do you prevent poverty when you are giving all of the assets to a group of people that you can get nothing back from
15:00
it's almost a question of imagine you gave your house and all of your assets everything you own
15:07
to some rich guy and then you took a massive loan from him and you gave the money back to him so now you're in debt to him he owns everything how can you not be poor and the answer is you can't so if you keep trying to provide living standards without the ability to tax the people who increasingly own everything it's not possible so you will continue to see this Balancing Act between the government has to spend a deficit which keeps inflation High but I
15:34
think what you will see in this country I think the conservative government has a big political problem with high interest rates and that takes us to our next point which is house prices so
15:47
how do you buy a house in a world where you're poor and the rich have everything
15:52
the answer is you borrow the money from the rich and that that's mortgages and mortgages have been the way that we have squared this circle for the last 20 years in this country which is the conservative government has quite a political need for people to own property because private renters and social renters almost never vote conservative
16:14
um they need house prices to rise because that's the only reason that older people feel comfortable because the house prices are rising so they need to keep people owning property but inequality is rising and rising, the middle class are losing their assets so how do we keep
16:30
ordinary people owning property when inequality is rising because rising inequality of wealth means you lose your assets but we need you to lose your assets but keep your house how is that possible the answer is increasing debt so you can keep your house and you can just get more and more and more and more in debt to the rich that way you stay a property owner so you keep voting conservative but
16:52
you become poorer and poorer generation after generation so it's really mortgages and debt I like the magic solution that works for the government and that has been working for them for the last 15 years quite well politically because the rich get richer and richer because you owe them more and more and more money but you keep your house so everybody's winning the rich get richer you get poorer but you keep voting for them because you're a homeowner and what you want
17:14
is for asset prices to go up it's really really good for the conservatives and it's really bad for people in general and this is why higher interest rates are a disaster for the conservatives because they need ordinary people to be taking huge amounts of debt and huge amounts of debt are not affordable for ordinary people at interest rates of six seven eight percent which is what a lot of mortgage rates have gone up to right so they need interest rates to come down they
17:40
need interest rates to come down desperately so I think what they will do and what you're seeing them doing is they will try their best to run as much as possible an extreme austerity government in the next year and a half in a desperate attempt to bring inflation down quickly
17:57
so that interest rates come down and as soon as interest rates come down you will start to see those house prices go up because of the thing we mentioned at the beginning of the video which is that 700 billion pounds which has been given out by the government the last three years is still sitting in the bank accounts of the rich and this is the big conflict we have right the rich have all that money and what would the rich people do with money they want to buy assets so house
18:22
prices want to go up but rich people themselves don't want to go out and buy a ton of houses right because buying houses is a hassle you know you need to manage tenants, super rich people don't want to be having to fix poor people's boilers things like this they don't want to be involved in stuff like that so what they normally do is they lend the money out they lend the money out but suddenly
18:39
poor people can't afford to borrow the money anymore so it's created this it's created this two forces in house prices which is on the one hand house prices should be going up because the rich have got a ton of money and it's important to be clear house prices have gone up by about 20% since the beginning of Covid, and now they've come down about 3-4% so that force of the rich having a ton of money push house prices up but now the mechanism by
19:07
which rich people buy houses and I think this is an interesting thing to consider mortgages are in a very real way the way that rich people buy houses so I've got half a million pounds and you've got nothing and you want a house there's two ways I can give you housing I can buy the house myself and I can rent it to you or I can lend you the half a million pounds you can buy the house and instead of paying rent you
19:31
pay me Interest financially it's very similar if you think about it in both cases I provide all of the money for the house to be bought and in one case you pay me rent and other case you pay me interest so really mortgages are the way that the rich buy houses for the poor but that channel has become blocked because the poor can no longer afford the interest um so I think there are two things that can possibly happen here and the way it will play out will depend on the country
19:57
one is in this country I think the government will do everything they can to bring inflation down but that will come at the cost of really crushing the economy and crushing ordinary people um I think the way they'll hope to survive that is by making a bit of room to like throw a load of money immediately before the election they will try to bring the interest rates down and as soon as interest rates come down then you will see this flood of money that the rich have again
20:21
they continue to push house prices up even though they've already gone up 20% I think they can go up a lot more if you look at after 2008 house prices basically doubled over the next 10-15 years and I think they can do that again so if the interest rates come down then this channel will open up again the interesting question is what if interest rates don't come down which is what could happen if governments are forced to keep running big deficits
20:44
in that case you'll have the question of how do the rich people buy their houses when they can't lend the money out and I think what you will see if that happens is the rich will start buying the houses through corporations and you will start to see much more corporate landlording so I lived in Japan for a long time and I think increasingly in the US you're seeing rather than the rich lending the pool of money via mortgages the rich pull their money together
21:11
into corporations so there's I think it's is it BlackRock or is it Blackstone in the U.S it's a massive company which owns a huge amount of housing, rich people pool their money together in corporations the corporations buy the houses and the corporations lend the money out because it's quite interesting at the moment you're seeing rents go through the roof at the same time as house prices go down and the rich are sitting on a huge pile of cash so it's a it's
21:36
a massive investment opportunity for wealthy people with cash because rents are super high and they've got a ton of money and the prices are cheap so the rich should be buying these houses
21:49
and bringing the rent in but the problem simply is rich people are you know too lazy to go and buy 10 houses right and it's becoming more it's it's cumbersome right rich people don't want to be becoming massive buy-to-let landlords right so but either way the money is there and that will force house prices up in the long term and I think what you're just seeing is the the mortgage channel get blocked in the meantime um but what you would inevitably see in any case is
22:17
the massive gift of cash to the rich will manifest in increased inequality of real assets either through much higher mortgages which means a much higher amount of debt from ordinary families to the rich, we've already seen a much higher debt from the government to the rich and what you will see is increased direct holding of properties I think it's important to realise when that mortgage channel gets blocked it provides a massive opportunity for rich people who can just pay cash
22:43
they don't need a mortgage they can just buy cash at the cheaper price get in that massive increase in rental income rents are going absolutely through the roof and they can profit from that so every single step of the way, Covid management meaning massive cash transfer from the government to the rich, higher interest rates meaning higher debt payments from mortgagees and the government to the rich and falling house prices at the same time as high mortgage rates means
23:13
cheaper access to housing if you have the cash, which only rich people do, every single step of the way is benefiting the rich and hurting ordinary middle class families and there's nothing that
23:25
will prevent this if we don't start discussing more seriously taxation of the rich so to make clear the predictions you know inflation will come down um it will still be positive for a while interest rates will stop going up and I think they'll probably start coming down it might take a year or two um house prices
23:44
they're clearly falling at the moment even though they're still significantly higher than pre-covid I don't think that will last I think as soon as interest rates start falling they will start going up and even if they don't you'll just start seeing more more Corporate Land lording & I know these are pessimistic predictions uh we get a lot of people saying that these are pessimistic predictions but this is what happens if you don't text the rich and if you don't want
24:05
bad outcomes you cannot allow inequality to get higher and higher so support the channel we're always pushing for higher taxation of the richest and that's you know that's the only way we're going to prevent these things I know that these are not good for ordinary families
24:21
we can't fix it without without improving taxation policy so let's do that okay thats all
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