Under the Guise of Good

"But you said three years!"

Yesterday, New Zealand raised the interest rate in the country by 0.25 percent and the interesting thing is that while I read that article less than 12 hours ago, it seems to have been buried or removed from the Australian site I saw it on. It mentioned how the Reserve bank of Australia said "no interest rate rises for three years" at the start of 2021, which they are obviously going to go back on. Not only that, they have already started stricter loan fitness testing, so it is getting harder to qualify for loans, which means compared to the average house loan today of 580,000 dollars, people will qualify for about 540K instead. Considering the inflated housing prices, this makes it even harder for lower income people to get into a house.

But don't worry!

In Victoria, the government are introducing a plan to help you out - by taking a stake in your home. What they are offering is provide up to 25% of the purchase price of the house, so that the buyer only needs to provide 5% of the purchase price.

Buyers can choose to pay back the state, or when selling the property the government will have it equity returned to it.

Hmm. While the details in the article are lacking, rather than bring housing prices down, this will push them up further as people will qualify for even more debt and, I suspect that "when selling" the property, the state will have its entire capital outlay (which is taxpayer money) returned to it. What this means is that even if housing prices drop 75% at sale, the state is still protected and will get its money back, while the seller will lose the deposit and still have an almost full house loan obligation.

"Deal!"

With the expected and likely knock-on effects of the Evergrande debacle in China, we are probably going to see another 2008-esque event, where the global financial institutions and large players will take their profits and then dump onto the markets, sending the global economy into a tailspin. Don't worry about this though, because when it gets low enough, they will buy back in cheap from all the people who had to sell to cover their debts and the cycle can start again. Just like always.

I think that the Evergrande issue is a good example of why centralization will always end up in collapse and massive correction, as when core decisions are made, they incentivize a narrow band of market behavior. For example, it is possible to keep building properties, even though there is reportedly 90 million empty apartments. This is not a new problem either, as back in 2011, it was reported that there was 64 million empty apartment - yet, *let's build some more, because it is good for the economy to keep building, even though there is no demand for what we build!

Centralization will always make these kinds of decisions and even if there is the dream some have of a "benevolent dictator" that works in the best interest of the people, there is just not enough knowledge and flexibility to build one-size-fits-all rules to cater for them. Factor in that most decision makers will skew their decisions to favor their own self interests, and results get increasingly worse.

While people like convenience and simplicity of centralization, it always comes with the inevitability of crash and when it crashes, it crashes hard across the board, as nearly everything is aligned with the common incentive and these days, they are borderless and connected globally. A crash in one location causes failure everywhere. In this way, while decentralization is far messier and harder to build alignment, the many paths, incentives and nodes spreads risk in a more organic way, similar to the way nature uses biodiversity to protect itself from cataclysmic failure.

It is going to be interesting as while the central points are fighting over left and right, right and wrong - the real battle that is emerging is going to be between centralized and decentralized structures of business and economy, and I think that we will get to a point that will make it abundantly clear, which is going to survive.

The stake the government is using is our stake - not theirs.
Why not cut out the middleman?

Taraz
[ Gen1: Hive ]