Last week I watched Push: The Global Housing Crisis on Al Jazeera, featuring Leilani Farha, Canadian lawyer and former United Nations special rapporteur on adequate housing. Today she is the leader of The Shift (the global movement to guarantee the human right to housing).

The central takeaway from this “Witness” documentary is that the housing crisis is a global financial crisis (as opposed to the 2008 global financial crisis).

Essentially the problem lies in the concept of housing (and the real estate it sits on) as a form of financial wealth (“financial wealth” is an oxymoron, by the way; it means “wealth made up of claims on wealth ”) as a human right; as such, whether the dwelling is occupied or not – or whether it is occupied by residents rather than residents – is incidental. From this financial perspective, all that matters is the dollar value assigned to the assets, and that wealth is sort of generated through a bidding process that increases that dollar value of the financial assets.

Managed funds, especially government (or government-mandated) pension funds

While we may emphasize the self-perceived legal culture of individual speculators in financial assets, the point Leilani Farha made was the role of managed funds, which means that – indirectly – many of them we, with the savings “invested” in these funds, are financial speculators without seeing ourselves as such.

A particularly important category of managed funds are public funds, including and especially public pension funds. The worst type of such funds would be the New Zealand Superannuation Fund created by Roger Douglas in 1974 and fortunately terminated by Robert Muldoon in 1976. The Canadian government pension fund is well known in this regard. And New Zealand has a smaller-scale government fund of this type; it became known after its creation in the 2000s as the “Cullen Fund”.

One can generalize here, thinking of Sovereign Wealth Funds, many of which are classified as “pension funds”; and we can think of privately managed funds – the backbone of the financial industry – many of which (like KiwiSaver) are government partnerships with that industry. Governments around the world have a deep interest in the financialization of real estate assets; both as governments and privately (as speculators) of the financial industry and technocratic, bureaucratic and elected elites. In a formal sense, as citizens holding public stocks, we are all speculators when government-run funds are deployed in the speculative financial market.

Yes, including the homeless and the poorly housed among us; the underprivileged among us may still feel good that our unachievable public equity increases as our housing and other material rights deteriorate. We have notional shares on the land from which we are evicted.

The way around this approach to the financialization of “wealth management” is the “pay-as-you-go” approach, which was last championed – in New Zealand – by Sir Robert Muldoon. The New Zealand retirement pension is still largely funded – as it should be – from current economic product; and not through the sale of financial assets that we hope retirees can convert into goods and services of some value. In addition, distribution is the essence of Universal Basic Income, an income distribution mechanism based on democratic accounting standards (ie based on basic human rights); a mechanism that can form the basis for the re-engagement of rapidly marginalized populations in every country in the world.

(The Covid19 scandal is how the authorized minority of the world’s population spread this virus to the excluded – including the disengaged poor – infecting and killing them in massive numbers throughout the world war.)

Pandora Papers

Other stories this week highlight the joint problems of financialization, inequality and impoverishment. One of those stories is the disclosure of the Pandora Papers leak to global media organizations.

These papers reveal a full story, not of illegality, but of elite law; of legal theft.

The control of financial assets whose prices appreciate, as these articles reveal, is more than “simple” tax avoidance. It is theft in the fullest sense of the term, in the sense that it increases the claims of those entitled to the finite economic production of the world, thus diminishing the claims of the poor and pushing them into unsustainable survival practices. Financialization is a mechanism of law and it applies to both applicants and providers of financial products.

Law is not just a problem of the uber-elite. Indeed, through our KiwiSaver and other accounts, we all manage to align ourselves to some extent with the most empowered. In addition, the very titled go well beyond “one percent”; rather the richest nine percent (or even the richest nineteen percent) of the “99%” tend to have an entitlement mentality about property values ​​and interest rates, even blaming the Visible “1%” of the world’s misfortunes.

A test of the culture of law is a person’s attitude towards interest payments. People who believe they are entitled to a “return” of interest on income saved above the rate of inflation are people who believe they are entitled, by way of self-satisfaction, to an increased share of world goods and services. It was in medieval times clearly (and correctly) understood that it was a sin to “make money with money”. This is different from profiting from investments, such as planting a crop, irrigating a field, retaining livestock for breeding or learning a trade.

In reality, the “real interest rate” is sometimes positive; this is when lenders (ie savers) are scarce and borrowers (including investors and willing governments) are plentiful. Under these conditions – rare in the lives of people alive today – a legitimate premium is payable to people in possession rather than spending money. The reverse conditions are much more familiar – an abundance of unspent money and an aversion to deficit financing – in which, naturally, the real interest rate should be negative.

Indeed, it was the negative real interest rates during the Great Global Inflation of the 1970s and early 1980s that scolded the uber-titled and led to the coup of late global financialization. the 1970s and (in New Zealand) the 1980s; the global event commonly referred to as the neoliberal revolution. Financial chicane theft has flourished ever since.

New Zealand Official Exchange Rate (OCR)

The first increase in OCR in New Zealand in several years is indicative of this view that real interest rates (as an indicator of real financial returns) should always be above zero. As such, the management of interest rates is the most widely used illiberal intervention in the market to support economic liberalism.

Overall, the New Zealand public accepts the argument that higher interest rates are needed to slow the rate of increase in the prices of financial assets (e.g. house prices). There is little evidence for this, and indeed 2004-08 house price inflation was largely the result of rising interest rates.

The problem is that true economic borrowers are discouraged by high or rising interest rates, and rising interest rates make very little difference to speculative borrowers. Thus, when interest rates rise, increasing proportions of all borrowed funds are loaned to acquire financial assets with a view to generating returns through capital appreciation. (Capital gains taxes are seldom enough to offset this reality; the main driver that drives money into speculation is the reduction in lending to the real economy.) This truth is clearly evident from a quick investigation. on the behavior of house prices during periods of rising interest rates.

In addition to rising interest rates “inadvertently” stimulating financialized markets, countries that intervene most to raise interest rates are finding their exchange rates rising, with foreign currencies increasingly treating domestic currencies as a speculative asset. While this currency appreciation can dampen inflation in these countries – while exacerbating inflationary pressures in countries with declining exchange rates – it also seriously hurts the export industries of those countries. Export industries are suffering the double whammy of rising borrowing costs and an appreciation of the exchange rate. Indeed, aggressively raising interest rates to create an appreciating exchange rate has all the hallmarks of a Ponzi scheme. (Just look at New Zealand in the years 1987, 1995-97 and 2004-08. If you don’t believe me, look at Iceland before 2008.)

It should be noted that while rising interest rates make any difference to the global inflation rate, they exacerbate it rather than reduce it. The only condition for this is that rising global interest rates also create global economic crises, such as 1929-31, 1979-82, 1989-93, 2000-01, 2005-08 and 2010-12. While rising global interest rates are inflationary – they raise the costs of businesses, including higher required rates of profit – global recessions are clearly deflationary. Higher interest rates only reduce inflation by creating recessions, an even worse problem.

Basic principle

Consumer rights should be distributed as human rights and not as greed rewards. They should be paid as they go, not divided by greed funds. As it stands, most of the rights belong to the greedy, by the greedy, for the greedy. To the extent that we are incentivized to contribute to government sponsored greed funds, most of us are a little greedy. We live in greed, not in an economic democracy. A true democracy distributes dividends of public actions – as the economy evolves – as a human right.

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Keith Rankin (keith at rankin dot nz), an economics historian by training, is a retired lecturer in economics and statistics. He lives in Auckland, New Zealand.

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