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Monday 8 April 2024

Signs of Serious Decline


A lot of people are celebrating today because they have found this out about their home prices:

“Australian house prices hit new high according to March PropTrack data

House prices have continued to increase for the third consecutive month, as buyer demand, job shortages and supply chain issues continue to push costs up.

Home prices across Australia have hit new highs, with the median value of a home in a capital city shooting to $832,000.

Month-on-month, national home prices set new records, growing by 0.34 per cent.

Dwelling prices in capital cities increased by 0.4 per cent, and are now 7.64 per cent above prices in March 2023, and a shocking 35.2 per cent higher than in March 2020.

The figures, released on Monday in PropTrack’s Home Price Index report, found homes in all capital cities bar Hobart had increased in price since February.

Home prices in Tasmania’s capital fell by a slight 0.03 per cent month-on-month, and have dropped by 1.65 per cent year-on-year however they were still up 36.1 per cent since pre-pandemic levels.”[1]

Many people who own homes, or who have investment homes for renting, will be celebrating that their bottom line of wealth has increased through no effort on their part; especially in the capital cities. Buying land in Australia is like buying magic money. You just pay for the land, and then watch it expand in value again and again and again, like magic.

And people in Australia’s often most forgotten city will be doubly celebrating,

“Despite higher interest rates eroding affordability, property prices in Perth are expected to rise faster than any other state or territory due to a fundamental undersupply of dwellings and a growing population.

Independent industry forecaster Oxford Economics Australia’s Residential Property Prospects report, released Monday, predicted prices in the west would increase by 30 per cent to 2027.”[2]

Western Australia is by far the largest state in Australia, by land size not population, but it is easily the most forgotten state, because we Aussies living on the East Coast can tend to forget that we have many cousins over in Perth. But these cousins will be celebrating, at least those who already own homes.

If you are not in the housing market but have been locked into the rental market you might not be celebrating as much. For nearly two years now interest rates have been raised and house prices have continued to increase. This is due to a massive increase in immigration in the last two years, though I suspect there are other factors as well, because many boomers are selling their old homes and buying their country dream house, or coastal retirement home, and they are so cashed up they are willing to pay the exorbitant prices that these things are going for.

But I would like to suggest that this is not a good sign of health for our economy, but a continuing trend of serious decline, and signs of the boom before the crash. Vox Day shared a link to this fascinating article on his blog about a week ago, and it helps give insight into what is actually happening with our economy at the moment:

“Arrighi adopted this approach and, in his major work called ‘The Long Twentieth Century,’ elaborated his theory of the cyclical pattern of ascendency and collapse within the capitalist system, which he called the ‘systemic cycle of accumulation.’ According to this theory, the period of ascendency is based on an expansion of trade and production. But this phase eventually reaches maturity, at which point it becomes more difficult to profitably reinvest capital in further expansion. In other words, the economic endeavors that propelled the rising power to its perch become increasingly less profitable as competition intensifies and, in many cases, much of the real economy is lost to the periphery, where wages are lower. Rising administrative expenses and the cost of maintaining an ever-expanding military also contribute to this. 

This leads to the onset of what Arrighi calls a ‘signal crisis,’ meaning an economic crisis that signals the shift from accumulation by material expansion to accumulation by financial expansion. What ensues is a phase characterized by financial intermediation and speculation. Another way to think about this is that, having lost the actual basis for its economic prosperity, a nation turns to finance as the final economic field in which hegemony can be sustained. The phase of financialization is thus characterized by an exaggerated emphasis on financial markets and the finance sector.

How financialization delays the inevitable

However, the corrosive nature of financialization is not immediately evident – in fact, quite the opposite. Arrighi demonstrates how the turn to financialization, which is initially quite lucrative, can provide a temporary and illusory respite from the trajectory of decline, thus deferring the onset of the terminal crisis. For example, the incumbent hegemon at the time, Great Britain, was the country hardest hit by the so-called Long Depression of 1873-1896, a prolonged period of malaise that saw Britain’s industrial growth decelerate and its economic standing diminished. Arrighi identifies this as the ‘signal crisis’ – the point in the cycle where productive vigor is lost and financialization sets in.

And yet, as Arrighi quotes David Landes’ 1969 book ‘The Unbound Prometheus,’ “as if by magic, the wheel turned.” In the last years of the centurybusiness suddenly improved and profits rose. “Confidence returned—not the spotty, evanescent confidence of the brief booms that had punctuated the gloom of the preceding decades, but a general euphoria such as had not prevailed since…the early 1870s….In all of western Europe, these years live on in memory as the good old days—the Edwardian era, la belle époque.” Everything seemed right again.

However, there is nothing magical about the sudden restoration of profits, Arrighi explains. What happened is that “as its industrial supremacy waned, its finance triumphed and its services as shipper, trader, insurance broker and intermediary in the world’s system of payments became more indispensable than ever.”

In other words, there was a large expansion in financial speculation. Initially much of the expanding financial income derived from interest and dividends being generated by previous investments. But increasingly a significant portion was financed by what Arrighi calls the “domestic conversion of commodity capital into money capital.” Meanwhile, as surplus capital moved out of trade and production, British real wages began a decline starting after the mid-1890s – a reversal of the trend of the past five decades. An enriched financial and business elite amid an overall decline in real wages is something that should ring a bell to observers of the current American economy.

Essentially, by embracing financialization, Britain played the last card it had to stave off its imperial decline. Beyond that lay the ruin of World War I and the subsequent instability of the interwar period, a manifestation of what Arrighi calls ‘systemic chaos’ – a phenomenon that becomes particularly visible during signal crises and terminal crises.[3]

Of course, Australia is not an empire on anywhere near the scale of the United States, but because of our very strong alliance and partnership with the USA since World War 2, Australia has tied much of its prosperity and much of its economic strategy to following the trajectory of the United States. We have de-emphasized production and industry,  like the US, and have pushed more of our economy towards financialization and capital trading. And this has had a massive impact on the cost of living and housing in Australia, because houses have become a hot commodity to trade in the financial markets. They are these magic entities that just go up in value, whether they are improved by investors or not. They just keep going up. As a result the cost of living in this country has skyrocketed out of connection with real world wages. They are heavily unbalanced.

But the point of sharing this article is to show this: the apparent boom in Australian wealth we have experienced since the 1990’s, is not a sign of a healthy and booming economy. It is the sign of a parasitical economy that gives the appearance of wealth, because assets are worth more and more, but really this is just a result of financialization. That is money has been poured into the housing market to make more money, not produce the homes Australian's need. Not that Australia is not building homes, it is. But coupled with this financialization has been record immigration growth for the last two decades, which has meant that there is a continual pressure on demand for housing so that the housing ponzi scheme can continue to expand, and expand it has, massively. This means that no matter how fast homes are built in Australia, every government since the last years of the Howard era, has insured that so many people come into this country that houses cannot drop in value.

This gives the appearance of economic growth and prosperity, but really these are financial games which are played in the late stage of a system's economic collapse. Our country's economic managers and investors have found a way to squeeze massive profits out of an increasingly de-industrialized economy, at the expense of the quality of life of our people; an appearance of growth, when really the soil is about to go barren. 

Now people have been predicting a collapse for some time. I have no idea when it will happen. But the fact that the United States, and to a lesser degree Australia, are following these economic trends as observed in history with the collapse of other empires, shows us that there will be an end to this game eventually. You can only financialize markets for so long, before you strip the economy of all its real value and the foundations come out from under you. 

Wealth that is not connected to real world value will eventually be exposed for the fraud it is, it is that simple. You cannot ignore reality forever. 

If there were no economic competitors to your country, you could probably play this game for much longer, but there are. The world economy is breaking into two main competitive systems BRICSIA and the globalist American dominated western nations. And the nations which are surging have economies based on industry and production, not financialization. This boom we see in the heavily financialized Australian housing market is a sign we are heading towards a massive brick wall. The only real question is: when will we hit it? I suspect right around the same time the United States hits its own brick wall.   


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