Next US Crash between 2022 & 2023

by Serban V.C. Enache

Despite the desire of some to plunge the US economy into a recession under Trump’s term – probably the ultimate humiliation for the businessman President – the bust isn’t anywhere near the horizon. To argue this point, I will use the 18 Year Real Estate Cycle approach – discovered by land economist and real estate appraiser Homer Hoyt in the 1930s – and used with great success by other Georgist authors like Fred Foldvary and Fred Harrison. Both men predicted the Great Financial Crisis, Harrison as early as 1997.


Homer Hoyt observed that the Chicago real estate market, for almost a century, followed a nearly perfect 18 year cycle. The graph below shows peaks in land values, in construction, in the business cycle, and the intervals.

The cycle’s dynamics are as follows… It begins when home prices are at a level when rents from owning property cover the mortgage to buy it. When buying is preferable to renting, this triggers an upswing. Increased home equity encourages more buying. The financial sector fuels the phenomenon aplenty [80 percent of loans in the US are mortgage loans]. Land prices grow much faster than incomes and rents. After the 14 year mark the situation becomes unsustainable. A four year downturn follows. Fear kills excessive prices faster than greed hiked them. But the 18 Year Cycle theory doesn’t hold between 1925 and 1973 [World War 2, regulated finance, full employment policy, strong unions]. There is no perfect cycle or model. To have perfection would mean to have stagnation, and the nature of capitalism, indeed the nature of humans, infringes upon this state of ‘perfection’ with change. The seminal part isn’t really the time frame, but the key indicators signaling a turn in the cycle.

It’s also very important to note that traditional financial theory doesn’t apply to much of the world today, for countries who have free floating fiat currencies as opposed to gold or foreign currency pegs. I always cringe when I hear doomsday scenarios invoked on the grounds that near zero or negative interest rates herald an imminent collapse, because central banks can only keep interest rates ‘artificially low’ for so long. The authors of these predictions clearly don’t understand fiat money, and the fact that countries which spend and tax in their own free floating fiat currency can keep rates wherever they want for how long they want. They keep the rate fixed [at their desired level] by allowing their money supply to fluctuate according to demand – something you can’t do under a fixed exchange rate system. A currency sovereign may control the price [interest] of his currency or the quantity of it, but never both at the same time. You either control the price and allow the quantity to fluctuate. Or you control the quantity and allow the price to fluctuate. Obviously, the former approach is much more conducive to stable economic activity and planning. And on the private sector side, banks don’t lend out deposits when they make loans to customers. Banks are constrained in their lending by their capital and the actual demand for loans. Loans create deposits. The vast majority of money in our economies is created endogenously.

So, moving on from 1973 up to the present, unfettered predatory/speculative finance + Animal Spirits, a term used by Keynes to describe people’s willingness or lack of it to spend and borrow [reduced or increased desire to save] + accommodating monetary policy in the form of near zero or negative interest rates + uncaptured values of location [the root cause of it all] equals the 18 Year Land Cycle or a shorter version of it. Predictions can be slightly altered as we approach the end of the boom period. Knowing all this, I put the next US crash somewhere between 2022 and 2023. If Trump opts to go fiscal instead of relying solely on monetary policy to keep the economy ‘good’, then the 2023 mark is the more likely date. Those who expect it sooner as in this year or the next, invoking the negative yield spread between short and long term Treasury bonds, will be proven wrong, for the aggregate macro-economic data is at odds with the orthodox economic narrative. The US and other countries are stuck in a low economic growth, low bond yield, low inflation atmosphere. And financial markets aren’t happy with it, despite receiving undue bailouts and windfalls under the Obama and Trump administrations. The crash may come sooner if Washington gets the brilliant idea to try and shrink the fiscal deficit in a proactive manner.

Michael Hudson on Real Estate & Speculation

Historian and economist Michael Hudson in a seminar from two years ago on real estate & financial speculation. Well worth the listen. Can’t recommend it enough.

Some Key Takeaways

Land is the most important thing in economics, the largest resource, and that’s why it’s the least talked about in the economics profession, hostage and or ally to the vested interests.

Thorstein Veblen observed that finance capital is real estate. The object of real estate developers is to tax the population via rent and interest, to inflate the price of property and then find “a sucker to buy.”

In the US, 80 percent of loans are mortgage loans. And 80 percent of capital gains are comprised of land.

The purpose of a city is to ensure that people can live, work, and do business there. But finance capitalism [as opposed to the industrial capitalism envisioned by the classical economists] is all about turning the city into an investment good – which means eroding the aforementioned activities [living, working, and (wealth creative) business].

Hong Kong’s budget [which includes all the expenses of running the public infrastructure] is based on taxing the rental value of property. The tax scheme it employs is not the Georgist single tax system. Even though the HK Government taxes the rental value of property, it’s still facing rising property prices. That’s because HK doesn’t capture anywhere near the full value of land.

Australian Governments have been content to neglect the manufacturing sector and encourage private debt growth and asset price inflation, relying instead on the resource exports sector – with China being their biggest customer.

The Chicago Boys, the first thing they did in Chile after bringing down Allende, in addition to assassinating every land reformer and labor union leader, closed every economics school in the country. They realized that you can’t have a [pseudo] free market without having a totalitarian state [complete control over the curriculum]. The Chicago School controls all of the major referee economic journals in North America – hence the lack of criticism of unearned income [like interest, rent, and patents].

Breaking with the tradition of Classical Economics, the modern ‘free market totalitarians’ insist that there is no economic rent, that there is no free lunch.

Big lenders to developing countries [Hudson cites Argentina as an example] try to assess the growth in the balance of payments of the debtor nation in question, in order to pocket all that growth for themselves.

The FIRE sector [finance, insurance, and real estate] effectively imposes a private land value tax on the country. Would-be debtors outbid themselves, who will pledge more of the rental value to the bank.

Foreign oligarchs wish to place their money outside, in case their Governments will try and confiscate their illicit wealth. Instead of putting their money in the stock and bond markets, they prefer to put it into real estate. This leads to asset price inflation, making it harder for households, workers, and SMEs to live, earn, and operate.

To the ‘rich people create jobs’ myth, Hudson argues that many in fact are job destroyers. He gives the example of a corporate raider, who borrows money at 1 or 2 percent from a bank, with which he acquires a company whose stock yields 6 or 7 percent, he doesn’t want to hire more people; he wants to lay off workers, to cut corners, to use the pension fund to pay the bank, and to threaten workers with company default if they don’t give up their current pension plans and other benefits.

The way to make money fastest is in an economy that’s being looted. Adam Smith said the rate of interest [referring to the interest payments the population had to make to the creditors] is often highest in countries going fastest to ruin.

Hudson says that the one identity that’s left out in Identity Politics is the identity of the person who has to work for a living.

The dream of finance capitalism / rentier markets is neofeudalism: that all income above subsistence be pledged to the rent-seekers, to the usurers, to the monopolists, to the plutocracy.

The practice of a Government borrowing in foreign currency [swiss franks and euros for instance] to finance domestic projects, which will require domestic currency to be printed anyway is ‘fake economics.’ Instead of being stuck with paying principal plus interest in a foreign currency [to fatten bankers], it’s much better for the Government to simply print its own interest-free currency.

High population levels don’t inflate property prices. Hudson gives India and China as examples and contrasts them with Western countries. It’s how much the banks are able to squeeze from the population that determines property prices, not the population level itself.

John Stuart Mill said that economic rent is what landlords make in their sleep.

There’s agreement among all the mainstream parties that the top 10 percent wealthiest in society should benefit at the expense of the bottom 90 percent.

Why do politicians allow financiers to dictate to them economic policy? Bribery, campaign contributions, blackmail, and crime.

For old people and retirees, who can’t afford to pay land value tax, the Government can freeze the money obligation on them for a given time period. However, the back tax [the arrears] will be collected from the sale of the property when the owner dies or moves out. Nobody has to be kicked out in the streets.

My enumeration ceases here. But there are many other important points Hudson makes. I encourage readers to make time and watch the whole seminar. To me, the notion of seizing the Natural Commons for the people is not only economically sound, but morally just, whether one’s of a particular faith or no faith. Treating land as capital, as a commodity, an instrument for speculation – to me – is not only economically unsound and false, but a sin against Man and an affront to God. In spite of my atheist brain, that is how my heart perceives it.