A question for the Bank of England, what is the true state of our banking sector? | Mindful Money
What strikes me about this question is the continuing notion afield that the system is capable of some sort of redemption if House prices or property prices were lower or if government spending were lower or more efficient if only people saved more instead of spending.
The problem is the Banking System and how money is created. 97% of our money supply is created by the banks as Debt and Banks are licensed the responsibility for regulating the money supply which has allowed them and still allows them to manipulate markets.
There is a significant and huge problem in that the basic unsatisfactory nature of this systenm for the taxpayer/citizen is offset with the highly satisfactory control that the Bankers and Governments themselves enjoy from the FIAT money illusion.
In short a new system is required fixing the current one, which is arcane and antiquated at its root philosophy, is simply not an option. We need a post industrial 21st Century solution not an 18th century dinosaur of a system that has simply gone well past its sell by date.
Positive money have a very good campaign seeking a reform to Honest money, Douglas Carswell had tabled a bill regarding fractional reserve banking last November, issues such as peak oil have really stymied the perto dollar hedgemony that obvioulsy troubles nations that hold substantial dollar reserves ( all the OIL countries ( including Russia) and China)
The narrative on oil is very thin Ellen brown has written convincingly regarding the currency side of Oil and the necessity for regime change in Iraq and Libya based upon their plans to adopt a Euro based trading currency whilst planning a shift to the Gold Dinnar. Geo politically the tables have turned regarding the very childish way in which our Banking Sions have sought to sell their illusions of certainty in an uncertain world to countries who have a much longer history of civilisation and appreciation of real tangible wealth over the Mad Hatters of the wall street and square mile casino. And theres the RUB.
Its the Casino stupid!
Some people say a crash in house prices is necessary as a Valuer that has valued Oil refineries and Gas Terminals in another life I have one comment on that.
There is a way of calculating the base market price on a real asset such as property the logical lower end price or entry price for property is not zero just as the maximum price must be related in some way to income multiples. ( my final year thesis for my degree was the Contractors Principle of Valuation for Taxation of Gas Terminals in Scotland, I had been employed by one of the Seven sisters. )
My very simple contention is that the basic price of a property in a market where there is no longer any activity.In a crashed or stagnant market supply and demand does not provide a Market price of comparable transactions in this situation the economic replacement cost of the property needs to be refrenced. This is a fairly easy thing to calculate there is a thing called Spons an almanac of prices/costs for the contracting world) that gives average building materials and labour costs for building. Today I would say £150 persqft would be a sensible price per square foot for a fairly traditional british house build there are cheaper ways and better ways to build but this is a first principles 101.
The price of any property has a land element generally this is around 1/3rd of the total price any amount of sophisticated analysis will get you a variation around this figure and so on but the humble 1/3rd 1/3rd 1/3rd usually brings home the bacon so I'll use it here so that then is £150 psft for the land element.
Finally there is the last 1/3rd which is for the unknowns opportunity cost and profit. If we want to take the profit out again the maths to do that is easy but I'll leave it as a 1/3rd for now.
Right that gives a base cost pers sqft of £450 per sqft.
For a more basic budget build one could argue for £100 per sq ft giving £300 pers sqft .
Anyway if we say take £275 psf which is very low and in all probability below the actual economic replacement cost if you take a 750 sqft 2 bedroom apartment that would be a bottom line economic replacement cost value of £206,250. Regardless of anything people need somewhere to live in the future and an economic value has to be placed on production my question is this what policies going forward an banking system will support the proposition that every family should at least have a 2 bedroom family home and the cost of providing it would be roughly the figure I am suggesting if one factors in the opportunity cost for instance the government has lots of land it could contribute for free but its value still has to be recognised even if not charged for. These are open Market prices and assumptions but provision of housing has to be priced some way and I do plan to get into some analysis of the Affordable so called social housing side fo the equation as I say this is a first principles starting 101.
I am going to develop this hypothesis further but just wanted to get it on paper going forward from this blog, in a melt down of the banking system and complete crash of the UK property market these first principles of economic replacement cost will be necessary to avoid a huge potential scam.