The Abaites were growing with now 8 Aba family farms and with the increased lifestyles and more certainty of production, plus trading with the Golites for new useful goods there was an incentive to also have many children and young adults. The Abaites also picked up a few human strays along the way as people down on their luck wandered into the Abaite settlement looking for help and a place to live. Further expansion was in the cards.

At the Sunday forum to solve the problems of the universe, the wise heads started discussing how they were going to manage the increased population and demand for new houses and farms. One of the older wise heads, said that was not a problem as they would just get a team together and build those houses and till that soil like we did when we expanded to 8 farms.

One of the not so old wise heads said “Hold on there, Mo. I don’t think that will work. Now that we are efficient at producing what we need plus excess for sale to the Golites, we don’t have extra labour and skills to just get a team together to build without seriously effecting our productivity.” “That’s right” the crowd mumbled.

“I know!” said Mo. “The new owners of the houses and farms will pay the building team Abacoins for their time so they can buy goods from others they can’t produce.”

“Now Mo,” said the not so old wise head who’s name was No. “Where are those people going to get that much Abacoin to pay for a farm?” For some reason and although asking good questions, No was always negative.

The Youngster that controlled the IP and the Money technology called the Abacus saw another significant opportunity. “We’ll lend them Abacoins to pay the builders”, said Ab

“But all the Abacoins are accounted for and spread around the community, we don’t have Abacoins to lend,” said No.

“Yes we do” said Ab to No and every other wise head. “I’ll just use the Abacus to record Abacoins loaned to the borrowers and then record that the borrowers own that Abacoin, balancing the system. No documents required. The same process can be used to pay for any new housing or products.”

“So Ab you can create Abacoins out of nothing?” asked Mo

“Nothing physical” said Ab “But there are some important processes and obligations that make it all work”.

1. The Abacus is the only source of record keeping and this must be confirmed by the wise heads being present at every change in records so that nothing can be changed without the community knowing.
2. The borrowers acknowledge by being present at the record keeping that they both have a loan and have Abacoin to pay for the building of their new homes and farms.
3. The borrowers need to produce goods from the new farm to be sold in the community so that they can earn Abacoin when selling those goods to repay the Abacoin loan.
4. The builders must spend the Abacoins they were paid on goods and services in the Aba community so that the Abacoin they were paid circulates due to productive purposes.

Ab had won them over with his brilliant Abacus technology solution and the rules they all agreed to. Ab not only controlled all of the Aba community transactions and trading with the Gols but Ab could also create whatever Money was needed by the community as if by magic, but nobody saw Ab’s real motives and how Ab’s power was growing and growing

Housing as a speculative asset, and other perceived stores of value.

There is some good news on housing. Housing is, by definition, a productive and necessary asset when not used for speculation.

Even without Australia having a formal human rights bill, housing is a basic human right that democratic governments should provide the means, at a reasonable cost, to enable all citizens to obtain. Proper comfortable housing allows citizens to be productive and provides a productive learning environment for adults and children alike, fostering an equitable society. Housing improves the value of Money and increases the amount of Money by being productive. But that’s through what it does, and not what it is.  Again, for the purposes of simplicity think of housing as for both residential and commercial, as the same simple rules apply. 

It does however seem that humans have an ingrained desire to turn productive assets (or anything really) into speculative assets, in the endless unnecessary pursuit of increased wealth at the expense of others. The great Australian dream is no longer a dream for a decent house for the family. It’s a dream to use housing as a wealth creation vehicle to steal from future generations. Many commentators will try to argue that the issues are all about a lack of supply or too much demand, and while these factors do have an effect, the availability of loans for housing is undoubtedly the major determinant of house prices.

 Conventional wisdom is that houses are a good investment as they are solid bricks and mortar. My reply to that wisdom is that houses are full of air, and if you’re paying a lot for the air then you could have a big problem. It’s not just affordability for younger generations, it’s also a productivity issue and a misallocation of capital issue. Just as importantly, it’s a Money issue.

We’ve learnt previously how loans from banks create Money, and that Money circulates in the economy. As a home loan is both the largest and longest-term loan that a citizen can take out, it is therefore a primary driver of Money creation. It would make a lot of sense for governments and all citizens to be very concerned about the size and terms of home loans, as these loans are fundamental to how much Money is created and on what terms. While Megabank is regulated, which borrowers qualify for a home loan and on what conditions is effectively outsourced to Megabank. Meaning that the system effectively  outsources Money creation to Megabank. The Central Bank sets short term interest rates, a very important function, but there are many other aspects of loaning Money and its resultant Money creation for which Megabank is responsible, with little or no oversight.

 It’s hard to come up with any other economic function that governments, in their various economic philosophies, delegate to the ‘market’ on the basis that the ‘market’ will ensure the best outcome for most citizens. At a time when affordability levels of housing to buy, or even to rent, are at such levels to be out of reach for younger generations plus a large portion of older citizens, it seems certain that the ‘market’ approach for Money creation does not work. Governments have failed in their delivery of the basic human right of housing at a reasonable cost to a large portion of its citizens.

I am not writing this article to solve the current housing affordability crisis, but to point out to citizens and society how the home loan market is critical to Money creation, and how the economy functions. Governments must take responsibility for the Money creation that sits on Megabank’s balance sheet and not leave it solely to private banks. More can be done. Transparent fixed capital requirements for Megabank, based on known borrower risk parameters is a must. Capital can be adjusted for current economic circumstances by regulation and legislation and not left to Megabank. Taxation benefits or hand-out subsidies on housing and loans should be equalised for all types of borrowers and not just a certain class of borrower. The government should co-ordinate with Central Banks on fiscal and monetary policy to achieve the goal of providing affordable housing for all, but also so that housing remains only a productive asset and not a speculative asset that creates excess Money for no good purpose.

Tenancy rights is also an area where there needs to be more focus and understanding. Obviously housing is a productive asset, whether you are an owner or a tenant. Whilst owners may venture into housing as a speculative asset, tenants do not. Leaving aside government landlord subsidies, tenants  provide the Money that supports the owner with income or loan servicing. Owners may provide Money in the form of equity to support housing, but the majority of Money required for buying and maintaining a rented house originates from tenant’s earnings. On this explanation, it’s easily argued that tenants are more valuable than owner investors in a productive housing market where housing is not speculative. The Australian perception that tenants are somehow second-class citizens without aspirations is wrong and is continually espoused incorrectly by housing speculators and those behind them.

As tenants are of great value to the economy, tenant rights in Australia are  weighted far too much towards owner landlords and encourage speculation. Tenant rights do not reflect the value of tenants. Increasing tenant rights, particularly on tenure and eviction rights, is not only equitable but creates a more productive environment for tenants and society. Increasing tenant rights may suppress housing speculation and therefore the Money creation machine, but would indirectly increase the value of Money, and the creation of Money through productive pursuits.

Only the voice of citizens will change housing policy, and that leads to Rule 11:

Rule 11. Housing loans are the largest creator of Money in the economy. Housing is productive until its value becomes speculative and then it becomes unproductive and distorts how the economy functions, leading to productive housing unaffordability and low economic growth. Citizens need to have a bigger say in how home loans are provided and the Money that creates. Tenants are more valuable than owners for the housing market and consequently, should have more equitable tenant’s rights.

While housing is in a class of its own when priced for speculation, let us touch on other speculative assets to demonstrate both the similarities and differences to speculative housing. We’ll keep it short and simple.

Gold is probably the oldest store of value on earth chosen by humans. Why is it a store of wealth? It is somewhat rare but has little productive use. It’s shiny, does not corrode, is malleable and so is great for jewellery. But most gold is simply held as gold and not jewellery. My opinion is. Gold is a store of value because it is. It is the same with diamonds. Diamond reserves are abundant, but it’s a very controlled market, creating the illusion of scarcity. However, citizens have decided that this metal, gold, and this compressed carbon, diamonds, are stores of value well above their productive value.

Do gold and diamonds represent a risk to the economy and Money, as speculative housing does? Whilst it’s possible to borrow from a bank against gold and diamonds, leading directly to the creation of money, that debt market is relatively small, as is the total size of the gold and diamond markets compared to housing. So we can conclude that these stores of value and a number of others do not represent a great risk to the economy and the Money creation system from devaluations.

Gold, diamonds, and any other accepted stores of value brings us to crypto currency. That is, Bitcoin type crypto and not asset backed stable coins. Although crypto is a recent phenomenon, it’s hard not to simply compare it with other, much older, stores of value that have limited productive use and are just chosen to be stores of value. It is certain that crypto can be borrowed against, and in a convoluted way it can add to the Money supply, but crypto markets are not big enough to have any great economic effect, even if they all crashed to zero as some commentators keep predicting. The vast majority of crypto as a store of value is held in two coins, i.e. Bitcoin and Ethereum, so if you’re speculating,  beware.

Nevertheless, it’s also not unreasonable to predict that in a digital world crypto, or at least some crypto, will continue to be chosen in the long term as a store of value, even if the theoretical value is close to zero. Its digitally shiny and it has been chosen. 

Alternative stores of value that is not Money leads us to Rule 12:

Rule 12: There are alternatives to money as a store of value e.g. gold, diamonds and crypto, that are not housing. These established value stores are entrenched in the way the economy operates, even crypto. These alternative stores of value, whilst important, do not have the size to be a risk to the Money system, but as an individual, let the buyer beware

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 [JW1]Not sure what this means?

 [JW2]Missing the end of the sentence