Thursday, 12 February 2009

Quote of the Day: Predictions of the collapse

As if Henry Hazlitt wrote it yesterday, instead of in 1946!

Government-guaranteed home mortgages, especially when a negligible down payment or no down payment whatever is required, inevitably mean more bad loans than otherwise. They force the general taxpayer to subsidize the bad risks and to defray the losses. They encourage people to “buy” houses that they cannot really afford. They tend eventually to bring about an oversupply of houses as compared with other things. They temporarily overstimulate building, raise the cost of building for everybody (including the buyers of the homes with the guaranteed mortgages), and may mislead the building industry into an eventually costly overexpansion. In brief, in they long run they do not increase overall national production but encourage malinvestment.

Alex Epstein supplies the appropriate comment.

1 comment:

  1. PC, try this for size (from a post of mine back in '07).

    So here’s a story from a few years ago (verbatim from Fred Harrison’s “Boom Bust: House rices, Banking and the Depression of 2010″:

    In 1794 “the City Council of Liverpool faced a complete collapse in the local banking system. On March 20, the Mayor reported that 58 merchants urged the council to secure a loan from the Bank of England to enable the City to survive “the distress which had engulfed the people”. Parliament issued a special Act which entitled Liverpool to issue negotiable notes for a limited period, to be lent at a rate of interest slightly below 4.5%. The citizens weathered the storm, thanks to what the Webbs described as “the boldest financial step recorded in the annals of English local government.

    What caused this trauma? Speculation focused on the rent-yielding opportunities presented by canals”.

    Oddly enough the same thing happened in 1812, 1830, 1848, 1866….and on and on.

    As Samuel Taylor Coleridge wrote in 1817, in his Lay Sermon booms and bust seemed to occur “at intervals of about 12 or 13 years each {as a result of} certain periodical Revolutions of Credit”.


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