"Undoubtedly!" said Gainer, as he swung the Clark Street bridge to let the CY Slocum pass through.

Friday, October 17, 2008

Socialist America

Since the Big "D" started to loom and the $700B bailout package was proposed, reports were that the US economy was changed overnight forever.

In the final debate McCain accused Obama of bringing Socialism to America. A $700B bailout for the banking and housing industries amounts to Socialism. And it came about during a Rebublican administration. So I don't think I can buy McCain's argument.

On another line of thought, seems that the first thing coming out of Socialist America is a deposing of traditional democratic processes. Now, I can understand that coming from the traditional political parties but I wonder what the real American Socialists have to say about this?

Is it necessary for socialist states to do away with democratic processes? Maybe it's time to regenerate the old Communist Party of the USA because I don't think they would take lightly that the current mayor of New York is attempting to change the term limits.

Now that we are going to be a fully bonafide socialist state, I am starting to wonder what happened. Something to do with housing. People couldn't pay their mortgages and banks quit lending money. Now they are telling us that there were investments in the portfolio that were not valued correctly. Real Estate was thought to be a no lose investment. All through the 20th century, housing always increased in value because of the real estate it stood on. How could real estate suddenly start tumbling?

Another thing, sure the common economic wisdom for the past century was to "buy real estate because it's value always increases". That's right, real estate always does increase in value, except when it doesn't! And now the capitalist has solid proof of that fact. I, myself am befuddled.

What is even stranger is that the Bailout Bunch are telling us that the government will be able to pay back the 700 billion because the assets will gain in value. Well, now, we know what they are thinking: "Real estate always gains value, therefore these assets will gain value and the taxpayer will be repaid". Yet we have just witnessed that real estate does not always gain in value.

Why would real estate suddenly not gain value? Is it because people could not pay their mortgages? If they can not pay the mortgage then they can not purchase the real estate so it losses value because there is no market. Then why couldn't they pay there mortgages?

First thing comes to my mind is that just prior to the Crash of 1929, 10 years previous to it, the country experienced an unprecedented change of technology which caused rapid economic growth and revolutionary social and political change. About the year 2000, digital technology went mainstream and an economic boom occurred. It was also accompanied by drastic social and political changes. Is there a parallel here?

In light of the past 10 years of economic developments, why would people not be able to pay their mortgages? This is the question to ask.

Now that we are a socialist state, I am dusting off the covers of Das Kapital by Karl Marx and Wealth of Nations by Adam Smith. But neither writes about real estate values as being foudational elements of economy. They write about uses of natural resources, production and distribution.

I must sort my thoughts further. It must be true that real estate does always increase in value. Two reasons:
1) Population growth increases while the available space for people does not, so demand is greater than the supply.
2) Land produces resources. A tree is valuable because it can give shade, produce fruit, shed it's limbs and the wood can be used to fabricate items or burned for fuel.

The crisis is not about the value of real estate, but the value of housing. A house has to be constantly maintained. Real estate appreciates while housing depreciates. So even if your house is depreciating, it may not lose value because the property it sits on has appreciated.

So what is happening? Phoenix is one of the hardest hit areas of the housing crunch. All the retirement housing that was developed on desert property is worthless because the land does not produce.

Another thread that I need to consider is that last year at this time it was predicted that there would be a food crisis. The crisis was not one of production but of distribution. Both Marx and Smith will deal directly with the issues of production and distribution.

But how does the housing market come down to issues of production and distribution. While we are at it, how does the ability to pay the mortgage come down to production and distribution? Why couldn't they pay?

Could it be that the real culprit is the digital economy? The conversion from a manufacturing production and distribution economy to an information society?


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