and they disappeared/were stolen overnight.
No, they'd been stolen over the previous 30 years. It's like one of those times when a pop star finds his accountant has been living the high life syphoning off their earnings for the whole of their career. The fact that we've got to look at the books now and found there's money missing dosn't mean it all went missing today. (Unless it's Scrodingers bank account) Any idiot can face a crisis - it's day to day living that wears you out.
He also notes that the bezzle is inherently pro-cyclical: In good times, people don't actually need their money, so they don't check as often that they still have their money, so it becomes easier to embezzle them, and the bezzle grows. As soon as trouble starts, people begin to take a hard look at their balance sheets... and the bezzle evaporates.
I think much of the money being destroyed right now is the bezzle getting smaller. So it was stolen over the last thirty years. But it's disappearing overnight.
- Jake If you only spend 20 minutes of the rest of your life on economics, go spend them here.
The Bezzle was spread around the economy and now, when it disappears, everyone takes a hit, not only the money forgers. Most economists teach a theoretical framework that has been shown to be fundamentally useless. -- James K. Galbraith
In theory, I've "lost" tens of thousands of pounds in the last year on the value of my home. But that "money" was the unearned result of the property bubble.
It would have been useful if I'd wanted to secure debt against it, I suppose. But did it ever exist in any really meaningful way? If I'd wanted to move home, I would have needed every scrap of my unearned equity to buy the next house, because they'd all gone up by the same crazy amount. There was no way my "wealth" was going to translate into spending money, short of going to live in a tent.
In fact, however, I'd have to pay tax on the income from the released and reinvested capital, while paying my rent out of after tax income, which would be a year-on-year loss for the period I was out of the housing market.
And that assumes a "normal" rate of return on my investment. With interest rates of 0.5% I would be out-of-pocket by most of the rent each month.
And I might even have invested the capital in equities. Gulp.
Assuming, of course, that you want to treat your home as an object of speculation. Me, personally, I wouldn't want to do that, but then again, I don't particularly want to own a house in the first place...
But in any event, equity in your house isn't money - it only becomes money when you use it to collateralise a loan.
I think that was my point in the first place :)
However, I'd been predicting the housing crash for at least four years, so I think we could agree that my punditry skills aren't quite tight enough to speculate with the roof over my children's heads. ;)
Well, maybe a hedge with a charging point and wifi. Or double chocolate ice cream.
When I was a kid we had to walk across the house to answer the telephone.
Barefoot.
In the snow.
Uphill, both ways.
Well, presumably it would have been monetised by selling it, because the other dude would have had to take out a mortgage on the full value (unless he had some cash stashed aside for some reason) :-P
Obviously that's not as profitable as a building society account, especially one of the higher paying ones, but it's more secure than equities.
It's probably one of the ironies of the situation that over the last year a basic ISA will have been the most profitable of all possible investment vehicles.
Some hedge funds will have done better, as usual, but others will have done worse.
