Another day, another desperate throw of the dice ...

In my view, the whole Nulab 'economic miracle' was based on the fallacy that house prices can, in the long run, rise faster than incomes.

The Goblin King actually gave this as a reason why Middle England should vote Labour just six months ago: "I think the important thing is that over the last 10 years people in the South have seen their living standard rise substantially. They've seen their net wealth [i.e. house prices] rise even faster than their incomes."*

This whole "bank bail out" is partly just Scorched Earth Strategy, but, AFAICS, they are working on the basis that the last six desperate throws of the dice (throws 1 to 4 documented here a year ago, FFS!, throws 5 and 6 here) failed miserably to stem the house price crash.

When I first heard about this £50 billion bank bail out crap yesterday, my first thought was "I don't know what will happen next, all I know is that whatever comes next will be worse". And cutting interest rates - aka "pushing a piece of string" - was worse.

But if you read enough newspapers, in among all the drivel (spouted mainly by people who don't understand double-entry bookkeeping i.e. don't understand banking) the basic thread shines through:

From today's FT: "The implicit expectation is that banks will have to maintain mortgage lending to customers and loans to small businesses."

From The Evening Standard: "The Bank of England move will bring immediate relief for hundreds of thousands of homeowners on tracker mortgages. The monthly repayments for a borrower on a typical £200,000 London mortgage will fall by around £60."

... or even better, their Q&A:

Q: Will it stop property prices falling?
A: Not for a while...

Q: Where does this money come from?
A: You. £500 billion is equal to £20,000 for every taxpayer. The £50 billion immediately going into the banks is like a cheque for £2,000 from every taxpayer. The Chancellor will not be asking you to write a cheque for this amount but he will get it back in other ways: namely taxes. There is no guidance yet on where the Government's financial commitments to the banks will sit in the nation's books.

But as I said, this is just my view. There may be an altogether more innocent explanation for these seemingly unconnected events.

* As further evidence, there's the admission of Eddie George, the former Governor of The Bank of England, that they deliberately fuelled a consumer boom and the FSA turning a blind eye to the reckless lending practices of Northern Rock. These are my favourite examples, if you have any more, please leave a comment!

Bribing people with their own money

This Nulab government went one better than the normal system of pork-barrel spending. As well as just bribing people with their own tax money, they dusted down the age-old wizard wheeze of bribing people with their own debts.

Jock Coats linked to coverage of Eddie George's evidence to the Treasury Select Committee of early 2007:

"In the environment of global economic weakness at the beginning of this decade... external demand was declining and related to that, business investment was declining. We only had two alternative ways of sustaining demand and keeping the economy moving forward - one was public spending and the other was consumption. We knew that we were having to stimulate consumer spending. We knew we had pushed it up to levels which couldn't possibly be sustained into the medium and long term. But for the time being, if we had not done that, the UK economy would have gone into recession just as the United States did."

He said he was "very conscious" that stimulating consumer demand could give rise to problems in the future. "My legacy to the MPC, if you like, has been 'sort that out'," he said. Under Lord George's governorship, rates were slashed from 6 per cent in 2001 to 3.5 per cent in 2003, pushing house price inflation above 25 per cent and high street spending growth to its highest since the late-Eighties boom.

Which, apart from showing up BoE independence to be a total sham, confirms my long held suspicion that the last ten years of house price boom and 'feelgood' factor were conspiracy rather than cock-up and hardens my support for Land Value Tax - a tax which would keep house prices low and stable and prevent future governments from pulling this sort of scam.

Don't forget that the Tories will regain power in 2010, just when house prices are in meltdown. It is a pretty foregone conclusion that house prices will then stabilise and then pick up again, and they will repeat the massive economic fraud that is now starting to unravel for Nulab.

Ah well.