Sunday, 23 September 2012

Liberals Plan To Pauperise Parents and Grandparents

On Sunday's, Andrew Marr programme, Nick Clegg set out his plans for pauperising parents and grandparents. Faced with massively inflated house prices, the bubble in which must burst at some time, Clegg, rather than proposing to deal with Britain's housing problem, by announcing plans for massive house building, for measures against speculation and so on, instead proposed to boost debt levels even further, and to get parents and grandparents to assume responsibility for that debt, by placing their Pension Funds and other savings at risk, by using them as collateral for their children's mortgages on massively overvalued property!

This is from a Liberal-Tory Government, which continually says that its draconian austerity measures are necessary because you cannot solve a debt problem through more debt! But, in fact, Governments can solve debt problems through more debt, because they can legally print money, and provided they use the additional debt to invest in improving productive capacity, and competitiveness, the additional income will repay the debt. Moreover, Government Debt is only around £1 Trillion – not high by previous standards when it rose to 250% of GDP – whereas, Private Debt already stands at £2 Trillion.

But, in fact, despite its mantra this is a Government whose solution for most things seems to be additional debt. They complain, for example, that Banks are not lending enough to individuals, and small firms. They have put thousands of students in the position of starting life in massive debt, because of the increase in Tuition Fees, and the need to pay for them, and other living expenses by taking on massive amounts of Student Debt. Now, they want to pauperise those workers who have managed to build up a modicum of savings over their lifetime, by getting them to underwrite mortgages on properties whose values must before too long fall way below those mortgages.

In the period of the post war Long Wave Boom, the relative shortage of labour allowed some workers to save enough money to buy a house. Many were able to build up small company pensions – though the value of those was already hit badly due to the Stock Market Crash that followed on the credit fuelled stock market bubble created by Thatcher and Reagan. Some were able to build up an amount of savings. Already, the policies of the Liberal-Tory Government have begun to eat into that buffer. The Stock Market Crash of 2000, was followed by the Financial Meltdown of 2008. That has undermined many Pension valuations, and money that people might have saved in PEP's and ISA's. Where people played it safe, as they thought, and put their money into a simple Bank Deposit account, they find that as a result of the policies pursued by the Government and Bank of England, they are receiving next to no interest on their money, whilst inflation has way outstripped it, for the last 5 years. For the same reason, had they put their money into Bonds, the yield they are able to obtain on them, is negligible. At the same time, and for the same reason, anyone who has built up a Pension pot, finds that with current Annuity Rates, their pension will be a fraction of what they anticipated.

But, not satisfied with screwing people in that way, now the Liberals want to get their hands on what is left of older people's savings and assets. The reason the Liberals are putting forward this proposal is clear. Along with the Tory wing of the Liberal-Tory Party, they have sought to screw more Absolute Surplus Value out of people by extending the Working Life, increasing the State Retirement Age. But, some people who have managed to build up savings of one sort or another may still be able to retire at their expected age, because with the erosion of the State Pension, what they lose might be small compared to their company pension. The Liberal-Tories need to erode any independent means of support that workers might have. They need to do that for a further reason in respect of housing.
In the US, when house prices fell by around 75%, many people who had recently taken out mortgages, simply walked away from the property, and the debt, leaving it with the banks who had recklessly lent money. That is the last thing the Liberal-Tories want to see happen. On any metric, UK house prices are in a massive bubble. To get back to any of the historic averages, they need to fall by 50%, and whenever such a correction occurs, they always overshoot. UK house prices should, and at some point will fall by around 75%-80%. The Liberal-Tories along with the Bank of England, are pulling out all the stops to prevent that, but all they can do is delay it, and make it worse when it does happen.

They are trying to prevent it, not because of any concern for house buyers – if they had a concern for house buyers then as I pointed out in my post An Answer To James Bevan's Question they would be doing everything they could to reduce house prices – but out of concern for the banks who will go bust when all of that private debt goes bad. If the Liberal-Tories really wanted to help house buyers, and others seeking shelter, they would announce a massive Council House building programme; they would scrap the Green Belt, which protects the large landowners, and keeps land prices artificially high; they would introduce punitive taxation on empty homes; and they would stop the money printing designed to prop up the banks.

But, by getting parents and grandparents to underwrite the unaffordable mortgages on over priced property of their children, the Liberal-Tories provide another line of defence for the Banks. If house prices crash by 80%, the majority of home owners, and home buyers will not be adversely affected, as I set out in the blog above. In fact, many, looking to move to a better house, would benefit considerably from lower prices. Only those who have taken out mortgages in the last 10-15 years are likely to be adversely affected, the worst affected being those that took out mortgages in the last 5-10 years. But, for this minority, as happened in the US, the best thing to do would be to simply walk away from the property, and hand the keys back to the bank along with the debt. The Liberal-Tories want to avoid that.

What the Liberal proposal, put forward this morning by Clegg amounts to is that they want parents and grandparents to keep the bloated property prices inflated for a while longer. Then, when the crash comes, the fact that parents and grandparents have sunk their own savings into these properties means that the banks losses are reduced. The banks unable to get their money back from the children, who took out the unaffordable mortgages on the inflated property, will instead take it off their parents and grandparents! That will put pressure on the kids not to default, not to walk away from the property, and thereby to turn themselves and their parents and grandparents into debt slaves.

That is exactly the condition that Capital needs them to be in so that it can exploit them as wage slaves to the maximum, including forcing them to work well into old age. Workers should not trust Clegg and the Liberal-Tories in this as in anything else. Simply saying you are sorry after the event is not enough.

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