Wednesday, June 15, 2011

Credit creation & Land Value Tax. Greenspan, Wadhwani, Werner

Back in 2002 as reported in The Free Lunch - Fairness with Freedom on page 58, Alan Greenspan head of the US Fed (Central Bank) was reported to have said that homeowners who remortgaged to cash-in on equity in a house-price boom: 'such activity was important to the buoyancy of the economy of the time'. With such a mindset from so high an authority it is not surpising that over the following years economies around the world let rip, founded on soaring land and house prices and creating the unsustainable boom which ended in an almighty crash whose echo still resounds.

We now have suggestions on how to stop such dangerous behaviour in future. In the Financial Times 14th June 2011 Sushil Wadhwani (ex-Bank of England Monetary Policy Committee member) Why we may regret the UK regulatory policy bias spells out a possible mess-up. The BoE's new Financial Policy Committee's ground rules could clash with those of the MPC. They might cancel out. Besides, some of the FPC's ways of controlling banks' activity may be ineffective as the banks find ways of avoiding the FPC's fine-tuning. Wadhami worries that economic growth will suffer as harsh lending rules may stymie many banks' ability to lend. All this should lead people who dare to think beyond preserving the banking system, to study the work of Richard Werner international banking economist. The YouTube series of interviews explain how we could  remodel the credit supply industry (aka: banking) for the better.

But sensible credit creation is one side of the story. Problem is, the well-endowed have access to political levers which aid wealth preservation and can stop such startlingly obvious policies as: fairness for all through wise credit creation allocation.

Rising house prices are the goal of every homeowner who is already on the housing ladder. They are not the goal of potential home owners who see prices beyond affordability. They are not the goal of those who can only ever rent their home.There is a fundamental rift in justice in our society based on home ownership. Windfall gains only come to homeowners and all types of land owners and they arise from no productive work. They arise due to the successful society around. The poor (renters) help create this success as much as anyone else and the rich (land/home owners) take the wealth.  The phrase coined in The Free Lunch - The  Lottery Principle: The poor create the rich is demonstrated yet again. 

Whilst sensible credit allocation policies are needed, the land value gains should be taxed too. Everyone should gain from the success of all. We don't encourage welfare cash to be handed out to people who are work shy. But we encourage the diversion of the common wealth stacking up in land values to certain favoured categories of people only. Taxing the land values and sharing it out via a Citizen's Income to everyone, would start to bring some justice. Read the book for more details. Signed copies from the website:  The Free 
posted by Charles Bazlinton    


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