Where has prudence gone?

Where has PRUDENCE gone? What happened to the GOLDEN RULE? Wasn’t it a shame to sell half the nation’s GOLD RESERVES at the bottom of the market at an average price of $285 a troy ounce whereas now it is standing comfortably at well over $1,000? Above all, what happened to the boast to have ended the cycle of BOOM AND BUST?

Article from the latest issue of Practical Politics continues…

Let there be no doubt about it, the Government could have sheltered this country from all but the outer ripples of the current disaster, had it heeded our advice in June 1997. The UK could by this time already be collecting a significant proportion of land‑rent, with concomitant replacement of taxes on production, trade, earnings, savings, and spending. This would, inter alia, have removed the speculative “hope” value in land pricing which falsely gave people and businesses the impression that they had surplus funds to play with and could offer land (with or without developments on it) to lenders as collateral for what is now seen as wretched over‑borrowing. Banks and other lenders likewise accepted land (albeit labelling it as real estate, property, assets, or equity) at rising but utterly illusory valuations, as security for ruinous over-lending. Even if the regulatory authorities (Bank of England, H.M. Treasury, FSA) had been asleep, would all the banks, in a LVT working environment, have become caught dealing in overseas “toxic” securities?

We foresaw this slump, writing in Practical Politics issue 116 (July 2002) that it would occur “probably around seven years hence”. The key indicator is when the buying/selling price of land noticeably exceeds the capitalisation of its annual rental value. Land is not reproducible or transportable, and all that can happen when demand rises is for the price to rise too. Speculation and “hope value” merely push the price up further, until it is well out of line with the optimum current use value. That is the danger signal. Land is key.