Wednesday, December 7, 2016

A Look at Mortgages in Bezemer and Hudson's "Finance is Not the Economy"

Bezemer and Hudson:

Mortgage credit is extended to buy assets, mostly already existing. It generates capital gains on real estate, not income from producing goods and services. The distinction becomes blurred to the extent that mortgages are used to finance personal consumption (especially “equity loans” to homeowners) or new construction, but that is a minor part of the total volume of mortgage loans.

I sold my house so I could afford a bigger house. I bought my new house from a guy who was building himself a new house. So the guy who bought my old house, and me, and the guy who sold me his old house were in a real sense working together to divide the cost of one new house into three affordable parts.

In this economy, how else can you afford a house?

Bezemer and Hudson are telling you that me and the guy who bought my old house contributed nothing to GDP. I say we did contribute, because without our help the guy who sold me his old house could not have build himself a new house.

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