When more money doesn’t matter anymore.

My friend sold her house in March of this year, 2020. She got her asking price for it because some investors were bidding in search of a stable investment along with a few other people who wanted to live in her house and weren’t just looking for a place to park their money. The person who bought her house enabled my friend to get a townhouse in a larger city so that she could get a job in her profession which would provide her an income.

It has been her fourth move in the last nine years. She didn’t prefer her 90’s era townhouse in a larger city to the house she left behind in a smaller city, but she had to move in order to remain employed. She’s middle aged now and she has to remain employed in her established career because it’s so hard to get work in a new profession when you are older. She has wondered about going back to school to learn something new but she decided she probably couldn’t find work doing something new even if she invested in more education. She can’t increase her income by going back to school. School no longer offers a way for her to get ahead. The value in university schooling has declined for her and also for others who got an education but can’t find a job.

You can look on-line anytime to appreciate the high price of real estate across America. Everytime the Federal Reserve lowers interest rates since the Great Recession, housing prices in the U.S. have gone up. Even middle-sized communities offer no respite to high prices as compared with bigger cities. Even foreclosures are listed at high prices; even so when the property has been damaged. Retirees can’t trade a large house to buy a smaller house for less money. All houses that I see when I look on-line of every size and type are expensive now. Empty lots for sale are expensive too. The value in housing has been damaged by capital buyers in an easy-money low-interest system. There are no bargains.

If you imagine the future of real estate in a slow economy with high healthcare costs, high costs in tuition, high cost cars, high cost food, in an unstable economy with periodic crashes and less employment there aren’t likely to be buyers that can afford the use-value of a house and living in a community. It’s still desireable but no longer is it affordable. Many ordinary people can’t afford the high cost and their employment isn’t secure enough to risk a mortgage. Investors may be all that will remain of buyers in real estate. Even if investors trade houses with each other, the use value without a real market of family buyers is disappearing. Homelessness is rising. This is the new-normal economy.

Sometimes the new-normal economy has appeared to me as a poker game where the stakes are always high and the player across the table has way more money than me and no betting limits. I know the idea with poker is to win a big pot of money with a lucky hand of cards but if you can’t leave the game and you have to continue playing, you will eventually lose to the player with more money to bet who can stay in the game longer. That’s bad enough. But it’s worse than that. The player across the table can rely on the Federal Reserve to lend him an unlimited amount of money while my smaller amount of money is worth less every moment as the Treasury continues bringing more money into existence beyond the amount of money generated by GDP. Because the Federal Reserve has kept investors flush with money, some have bought out companies and fired the workers who take an income hit while they are unemployed. They have a lot of time to play poker but no money flow.

The number of living-wage jobs has fallen across America since the Great Recession when the Federal Reserve doubled down on their financial experimenting. Shall I sell my house in order to get some capital? My house seems to be worth more on paper than it once was. Investors bidded up the price of housing. But dollars when I cash out are worth much less than they once were when I earned them. And dollars can’t help me when they are worth less every day.

I read an article last week. Here’s a quote from Imprimis, with Heather Mac Donald writing in an article titled “Four Months of Unprecedented Government Malfeasance,”:

“Capital is accumulated effort and innovation, the sum of human achievement and imagination. Its creation is the aim of civilization.”

The word capital can mean more than one thing, according to the Dictionary of Banking and Finance. It can mean the money and assets needed to establish a business, for example a million dollars to buy a franchise with some of that money being used to buy equipment, some to hire workers and other money used for the franchise permission. A second meaning of the word capital is the money that people or companies own which they can use to invest.

What Heather McDonald said is not true if she is speaking of the second meaning where money and capital are terms being used interchangeably. Capital in the second meaning of money people own, is only a means of exchange. It isn’t the same as what people or societies make and do. Even if you mean the means to acquire assets when you say capital-like-money, capital in that instance is only the means to buy an asset or hire a person. Even if you buy a factory to make widgets, its isn’t the capital that makes them. Even if you buy robots to make the widgets, someone has to program and mind the robots.

In fact, as we live in this neoliberally broken economy, it is harder to use capital to make worthwhile exchanges at all or even use it to buy assets with a stable value. Capital is becoming worth less as it loses its mojo. This loss of mojo has happened after the Federal Reserve’s experimentation with our monetary system.

The Federal Reserve, in the Greenspan Put, put a backstop against investor’s losses in high risk capital markets. They decided to use tax dollars to backstop losses and guarantee that investors could keep betting with or without losses. Investing was considered to be the energy that turned the wheels of the economy. It was thought that the value of money could be kept high by the constant trading and buying of capital–capital like a commodity, like gold once was.

In the managed gold money system that FDR put into play, gold partially backed the value of the dollar. That was before our current fiat money system of dollars without any gold backing which we have had since the Nixon Shock. Investors in the managed gold money system maintained the value of gold by trading it. They agreed to buy enough of it to maintain its price. But gold as a traded commodity has a limited supply and the supply of capital is not limited.

It isn’t really possible to make the analogy between gold markets and capital markets working in the same way because the value of an unlimited commodity tends to decrease. Also, deciding to back investment risk with tax dollars caused an additional problem beyond dollars losing value. It undid the need for caution when investing. It made malinvesting seem of no consequence to risk takers by externalizing the consequences to tax payers. But wasting any resource has consequences for everyone. The economy we live in produces less and can accomplish less right now than it could before. Individuals have fewer opportunities. More money can’t change that.

If you want to learn more about our political and economic history and predicaments buy a copy of Political Catsup with Economy Fries available at Amazon.com.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.