{"id":13614,"date":"2015-04-28T00:00:00","date_gmt":"2015-04-27T22:00:00","guid":{"rendered":"https:\/\/michelsanti.blog\/2015\/04\/28\/the-real-estate-standard\/"},"modified":"2018-10-17T17:43:32","modified_gmt":"2018-10-17T15:43:32","slug":"the-real-estate-standard","status":"publish","type":"post","link":"https:\/\/michelsanti.fr\/en\/money-creation\/the-real-estate-standard","title":{"rendered":"The real estate standard"},"content":{"rendered":"

\"subprime-meltdown\"<\/a> At the height of the 2008 financial crisis, the U.S. government seriously considered nationalizing a large chunk of the American banking system. Instead, what it did was take effective control of the massive U.S. mortgage market. Without Federal guarantees and full government support, the U.S. real estate market (already under critical pressure from the subprime crisis) would have suffered a disastrous meltdown. This Federal control was implemented through the nationalization of both Fannie Mae (FNMA) and Freddie Mac (FHLMC), the two giant government-sponsored enterprises that provide the necessary liquidity in the secondary mortgage market. As a result, today these two entities guarantee approximately 65% of new mortgage loans in the U.S., compared to 27% in 2006! Moreover, the Federal Housing Authority (FHA) and the Department of Veterans Affairs (VA) guarantee about 20% of new mortgage loans, against just 3% in 2006. Therefore, as 9 out of 10 new home loans are now guaranteed by the U.S. taxpayer versus 3 of 10 new loans in 2006, the U.S. real estate market has effectively been nationalized!<\/p>\n

It is crucial to identify and understand these issues. It is important not to be misled by recurring real estate \u2018bubbles\u2019 in both the United States and Europe. The support and promotion of home ownership were the easiest vehicles for banks and governments to \u2018\u2019create money\u2019\u2019 in order to give us the illusion of material comfort while our wages declined. The process is simple because the money created by the banks is used for all of our daily transactions, without us even thinking about the big picture. In fact, the housing market substantially affects our economic cycles. And its economic activity accounts for most of the money in circulation. Therefore, since the real estate sector is our fundamental growth engine, any real estate crisis has devastating effects throughout the economy. The real estate market\u2019s multiplier effect on the economy is positive when the sector does well but especially negative during downturns. Eight of the last ten recessions in Western countries were caused by real estate crises. Despite the diversification of our economies, their technological advances and their enormous size (like the U.S.), a real estate crisis almost invariably escalates into a generalized recession. This is because real estate massively affects money creation and contraction.<\/p>\n

The financial system as well as government authorities is very much aware of the dangers of sharp drops in real estate markets. This situation causes distortions in the valuation methods. There are three main methods for estimating the value of a property: cash flow, cost of replacement and comparative sales. However, since cash flow (rents) and replacement cost obviously do not justify current market prices, the comparison valuation method prevails. The banking system depends primarily on real estate for money creation and no mechanism can today replace the wealth effect created by this sector. It is what sustains consumption in our economies. As a result, we find ourselves in absurd situations like the one that prevails today in the United States where it is the Federal government that \u2018de facto\u2019 controls real estate market valuation.<\/p>\n

At another time in our history, it was gold and the gold standard that defined the convertibility value of banknotes. Today, the dollars and euros in our pockets are indirectly convertible against property because most of the money created by banks derives from the growth of the real estate market. As banks and “shadow banking” create money based on real estate valuations (which are known to be artificial), we end up living not under a gold standard but under a “real estate standard”, where most of our money only exists to encourage property price appreciation.<\/p>\n","protected":false},"excerpt":{"rendered":"

At the height of the 2008 financial crisis, the U.S. government seriously considered nationalizing a large chunk of the American banking system. Instead, what it did was take effective control of the massive U.S. mortgage market. Without Federal guarantees and full government support, the U.S. real estate market (already under critical pressure from the subprime…<\/p>\n","protected":false},"author":4,"featured_media":13615,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"give_campaign_id":0,"_crdt_document":"","_exactmetrics_skip_tracking":false,"_exactmetrics_sitenote_active":false,"_exactmetrics_sitenote_note":"","_exactmetrics_sitenote_category":0,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"mc4wp_mailchimp_campaign":[],"_jetpack_feature_clip_id":0,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2},"_wpas_customize_per_network":false,"jetpack_post_was_ever_published":false},"categories":[648941280,648941281],"tags":[],"class_list":["post-13614","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-money-creation","category-real-estate"],"yoast_head":"\nThe real estate standard - Michel Santi<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/michelsanti.fr\/en\/money-creation\/the-real-estate-standard\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"The real estate standard - Michel Santi\" \/>\n<meta property=\"og:description\" content=\"At the height of the 2008 financial crisis, the U.S. government seriously considered nationalizing a large chunk of the American banking system. 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Economic stagnation becomes secular from the moment the money stops flowing, that is, once the investor keeps his precious cash in his bank account and that bank is no longer able to recycle it\u2026","rel":"","context":"In "growth"","block_context":{"text":"growth","link":"https:\/\/michelsanti.fr\/en\/category\/growth"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":26678,"url":"https:\/\/michelsanti.fr\/en\/china\/japanification-of-china","url_meta":{"origin":13614,"position":1},"title":"Japanification of China","author":"Michel Santi","date":"August 29, 2024","format":false,"excerpt":"\u00a0 \u00a0 Extended periods of deflation, economic stagnation, a declining real estate market, financial pressure and stress impacting households, businesses, and the state. All signals suggesting credible parallels between today's China and Japan in the 1990s. China risks becoming an aging and heavily indebted country before it becomes a wealthy\u2026","rel":"","context":"In "China"","block_context":{"text":"China","link":"https:\/\/michelsanti.fr\/en\/category\/china"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/michelsanti.fr\/wp-content\/uploads\/2024\/08\/Chine-Japon.jpg?fit=1200%2C676&ssl=1&resize=350%2C200","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/michelsanti.fr\/wp-content\/uploads\/2024\/08\/Chine-Japon.jpg?fit=1200%2C676&ssl=1&resize=350%2C200 1x, https:\/\/i0.wp.com\/michelsanti.fr\/wp-content\/uploads\/2024\/08\/Chine-Japon.jpg?fit=1200%2C676&ssl=1&resize=525%2C300 1.5x, https:\/\/i0.wp.com\/michelsanti.fr\/wp-content\/uploads\/2024\/08\/Chine-Japon.jpg?fit=1200%2C676&ssl=1&resize=700%2C400 2x, https:\/\/i0.wp.com\/michelsanti.fr\/wp-content\/uploads\/2024\/08\/Chine-Japon.jpg?fit=1200%2C676&ssl=1&resize=1050%2C600 3x"},"classes":[]},{"id":21601,"url":"https:\/\/michelsanti.fr\/en\/china\/china-infected-by-financial-capitalism","url_meta":{"origin":13614,"position":2},"title":"China infected by financial capitalism","author":"Michel Santi","date":"September 20, 2021","format":false,"excerpt":"\u00a0 The weight of the real estate industry has now become significant in the Chinese economy. Whereas it made up 5% of GDP in 1995, it is now one of the country\u2019s main growth drivers, coming to more than 30% of economic activity. It is more or less at the\u2026","rel":"","context":"In "China"","block_context":{"text":"China","link":"https:\/\/michelsanti.fr\/en\/category\/china"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/michelsanti.fr\/wp-content\/uploads\/2021\/09\/Evergrande.png?fit=1200%2C675&ssl=1&resize=350%2C200","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/michelsanti.fr\/wp-content\/uploads\/2021\/09\/Evergrande.png?fit=1200%2C675&ssl=1&resize=350%2C200 1x, https:\/\/i0.wp.com\/michelsanti.fr\/wp-content\/uploads\/2021\/09\/Evergrande.png?fit=1200%2C675&ssl=1&resize=525%2C300 1.5x, https:\/\/i0.wp.com\/michelsanti.fr\/wp-content\/uploads\/2021\/09\/Evergrande.png?fit=1200%2C675&ssl=1&resize=700%2C400 2x, https:\/\/i0.wp.com\/michelsanti.fr\/wp-content\/uploads\/2021\/09\/Evergrande.png?fit=1200%2C675&ssl=1&resize=1050%2C600 3x"},"classes":[]},{"id":13700,"url":"https:\/\/michelsanti.fr\/en\/real-estate\/when-real-estate-threatens-growth","url_meta":{"origin":13614,"position":3},"title":"When real estate threatens growth","author":"Michel Santi","date":"April 13, 2016","format":false,"excerpt":"It\u2019s not a coincidence if real estate prices \u2013 relatively stable up until now \u2013 suffered unhealthy volatility at the dawn of the 1990s. This phenomenon was the direct consequence of integrating the banking and financial systems together because deregulation and innovations such as securitisation intensified the flow of cross-border\u2026","rel":"","context":"In "bubble"","block_context":{"text":"bubble","link":"https:\/\/michelsanti.fr\/en\/category\/bubble"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/michelsanti.fr\/wp-content\/uploads\/2018\/10\/subprime-mortgages.jpg?fit=500%2C350&ssl=1&resize=350%2C200","width":350,"height":200},"classes":[]},{"id":25852,"url":"https:\/\/michelsanti.fr\/en\/real-estate-crisis\/no-more-bets","url_meta":{"origin":13614,"position":4},"title":"No more bets ?","author":"Michel Santi","date":"March 25, 2024","format":false,"excerpt":"Since mid-2022, real estate prices in the United States have dropped by an average of 20%, compared to a total of 23% during the cataclysmic subprime crisis. It was 23% at the time from 2007 to 2010, whereas we're dealing with a 20% decline over 20 months now. This would\u2026","rel":"","context":"In "banking crisis"","block_context":{"text":"banking crisis","link":"https:\/\/michelsanti.fr\/en\/category\/banking-crisis"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/michelsanti.fr\/wp-content\/uploads\/2024\/03\/hypotheques.png?fit=746%2C462&ssl=1&resize=350%2C200","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/michelsanti.fr\/wp-content\/uploads\/2024\/03\/hypotheques.png?fit=746%2C462&ssl=1&resize=350%2C200 1x, https:\/\/i0.wp.com\/michelsanti.fr\/wp-content\/uploads\/2024\/03\/hypotheques.png?fit=746%2C462&ssl=1&resize=525%2C300 1.5x, https:\/\/i0.wp.com\/michelsanti.fr\/wp-content\/uploads\/2024\/03\/hypotheques.png?fit=746%2C462&ssl=1&resize=700%2C400 2x"},"classes":[]},{"id":27507,"url":"https:\/\/michelsanti.fr\/en\/real-estate-crisis\/real-estate-speculation-vs-the-citizen","url_meta":{"origin":13614,"position":5},"title":"Real Estate Speculation vs. The Citizen","author":"Michel Santi","date":"February 10, 2025","format":false,"excerpt":"\u00a0 The West faces a major challenge. We do not want our society to be divided into two classes: wealthy property owners and poor tenants.\" These were the words recently spoken by Spanish Prime Minister Pedro S\u00e1nchez. Under his leadership, Spain will soon impose a 100% tax on any real\u2026","rel":"","context":"In "inequality"","block_context":{"text":"inequality","link":"http:\/\/michelsanti.fr\/en\/category\/inequality"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/michelsanti.fr\/wp-content\/uploads\/2025\/02\/espagne-golden-visa.jpg?resize=350%2C200&ssl=1","width":350,"height":200,"srcset":"https:\/\/i0.wp.com\/michelsanti.fr\/wp-content\/uploads\/2025\/02\/espagne-golden-visa.jpg?resize=350%2C200&ssl=1 1x, https:\/\/i0.wp.com\/michelsanti.fr\/wp-content\/uploads\/2025\/02\/espagne-golden-visa.jpg?resize=525%2C300&ssl=1 1.5x, https:\/\/i0.wp.com\/michelsanti.fr\/wp-content\/uploads\/2025\/02\/espagne-golden-visa.jpg?resize=700%2C400&ssl=1 2x, https:\/\/i0.wp.com\/michelsanti.fr\/wp-content\/uploads\/2025\/02\/espagne-golden-visa.jpg?resize=1050%2C600&ssl=1 3x"},"classes":[]}],"amp_enabled":true,"_links":{"self":[{"href":"https:\/\/michelsanti.fr\/en\/wp-json\/wp\/v2\/posts\/13614","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/michelsanti.fr\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/michelsanti.fr\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/michelsanti.fr\/en\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/michelsanti.fr\/en\/wp-json\/wp\/v2\/comments?post=13614"}],"version-history":[{"count":0,"href":"https:\/\/michelsanti.fr\/en\/wp-json\/wp\/v2\/posts\/13614\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/michelsanti.fr\/en\/wp-json\/wp\/v2\/media\/13615"}],"wp:attachment":[{"href":"https:\/\/michelsanti.fr\/en\/wp-json\/wp\/v2\/media?parent=13614"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/michelsanti.fr\/en\/wp-json\/wp\/v2\/categories?post=13614"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/michelsanti.fr\/en\/wp-json\/wp\/v2\/tags?post=13614"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}