imagine you gave your house and all  of your assets everything you own  

to some rich guy and then you took a massive loan  from him and you gave the money back to him so  

now you're in debt to him he owns everything how  can you not be poor and the answer is: you can't!

all right so today we're going to do a nice  educational one uh topical about the main issues  

which people are worried about today that we get  asked about a lot which are inflation, interest rates 

and house prices often viewed I think as  3 separate concerns but they're very very  

linked they're very related so I think if we cover  all 3 of these and the way they're related it  

can really help people to understand how the  economy works and what's happening now right  

so we're going to start with inflation so the  first thing is we've covered this before but I'll  

go over it quickly I believe and I've said this  many times on the channel, that the inflation was  

largely caused by the enormous amount of money  given out by this government and governments  

all over the world during Covid uh the amounts  are truly enormous £700billion in this country (UK) 

which is 14,000 pounds per adult, eight trillion  dollars in the US which is about 30,000 dollars  

per adult huge amounts of money given out that amount of money has to end up somewhere ends  

up in the bank accounts of private individuals  largely wealthier private individuals which means  

huge huge, nobody is denying this by the way this  is generally accepted, enormous accumulation of  

cash by richer individuals in the last three  years during Covid which is the reason why  

I said in the first video on this channel that when we come out of Covid we will probably see a  

big jump in inflation because there would have  been this massive cash accumulation with rich  

individuals okay um that has not generally  been the mainstream media explanation of  

inflation and they've been generally saying  it's because of sort of an anonymous after  

effects of covid which never really explained  in much detail and of course the Ukraine war  

I'm not denying that the war in Ukraine has caused  inflation especially with specifically with energy  

that is a part of it as well but I think a big  part of it is this massive cash accumulation  

during Covid if you give a huge amount of cash  out what you essentially do is you devalue the  

currency because most people especially the  rich have huge amount more money, more money  

going around, they can buy more things, they  can push prices up, prices go up and you know  

we predicted it in advance and it happened! what does that mean going forward okay so if I'm right and  

it was largely caused by this huge amount of money  given out by the government you would expect a  

kind of relatively sharp jump in prices and then  for prices to start going up much more slowly  

because the government gave a huge amount of money  out in a short period of time and now they are still  

running a deficit higher than pre-covid and that is because basically there's been a massive  

increase in poverty since covid because of the  inflation which means the government is now forced  

to for example subsidise people's energy which has  cost the government, they're forced to provide more  

poverty benefits because people are struggling  so the government gave a huge amount of money  

out and now they have to keep giving money up at a  much slower rate so what I would expect to happen  

is a big increase in prices and then for prices  to keep going up but not at this rapid rate so  

we've seen the big increase and what I expect  happen now is that prices will will slow down  

they will keep going up because the  government is still giving money out  

but they will not keep going up at the rapid  rate so we will see a big fall in inflation  

um almost certainly it's important that people  understand that a fall in inflation does not  

mean a fall in prices right, inflation  is the rate of increase in prices so  

prices jumped a lot they will keep going  up but that will slow down massively  

um inflation will probably fall to something  like six seven percent maybe even lower this  

year that is just simply because the  government is not giving so much money  

out the government will try and take credit  for that but it's important to remember that  

if prices are still going up six seven percent a  year then you know life is still getting harder  

life is still getting worse for you and the  fall in inflation is really a fall in the rate  

of decrease of your living standards it's not really something for the government to be proud of 

okay so that's inflation covered for now  inflation will probably normalise right   

I think it's because of the huge amount of money given out that that rich people still have, um  

other people think it's because of other things um let's move on to interest rates so  

interest rates have risen significantly here in the UK they're up to four and a quarter now (4.25%) 

financial markets... first thing to say is financial  markets think that we are nearing the top now they  

think that interest rates will probably peak at something like four and a half maybe four and  

three quarters (4.5-4.75%) which means another just 1 or 2 increases in interest rates this year um 

I suspect that'll probably be right in the short term & then interest rates will start to slowly come down 

now there's been a lot of discussion about  interest rates and I want to talk about this one  

because I think I think the situation is quite  interesting right there's been a lot of criticism  

especially from the left, people saying what the  hell is the Bank of England doing raising interest  

rates um and that's understandable because when  the bank raises interest rates your mortgage rate  

goes up I think a lot of people are seeing massive  increase in their mortgage rates it's causing a  

lot of problems um it increases the interest that the government has to pay on it's government debt 

government debt is massively increased in  the last three years it's very large it's about  

100% of GDP I think it's you know something like  30,000 pounds per person it's a lot um they  

have to pay a higher interest rate, if you have a mortgage you have to pay a higher interest rate  

um and people are understandably super stressed  about that right and they're turning around to the  

Bank of England and they're saying 'well why are  you doing this? because you're hurting us you're  

hurting us you're hurting the economy' and I think  this provides opportunity for a really interesting  

discussion so the first thing to say is from  my perspective the inflation has been caused  

by the government giving money out that has  ended up with rich people and we discussed this  

exactly in the first video on the channel where  we predicted the inflation right where we said  

if during covid the government is going  to give 700 billion pounds to the rich  

the only way to avoid a crisis in  inflation and inequality because  

that cash distribution increases both of those  things, is to take money back from the rich  

through taxation policy you see that's  symmetrical if I give you money then the way  

to reverse that and avoid the consequences  of that are to then tax money from you okay  

but that's not what we're doing right what  we're doing is the government has given money  

out which has ended up with the rich and then  rather than taxing money back from the rich  

the Central Bank the Bank of England is increasing  interest rates and this is because economists when

they think of inflation they always think of interest rates this is what happens in economists minds 

if inflation is too high raise interest rates if inflation is too low lower interest rates  

these are like the articles of faith of being an  economist they're really connected and they  

tend not to think in terms of fiscal policy  so in economists minds they have these these  

ideas of two levers that rule the economy one is  fiscal policy and that is government taxation and  

expenditure so during covid the government run  a massive deficit that means they spent way more  

than they taxed, that is what they would call a  fiscal stimulus, it's pouring money in in terms  

of government spending that's fiscal policy  monetary policies is basically Central Bank  

interest rates it includes quantitative easing which we've covered before but I think to keep  

things simple let's just talk about interest  rates and that is you lower the interest rate  

to speed the economy up, you raise the  interest rate to speed the economy down  

it's important to recognise that these are two  different things all right and both of them  

can affect inflation so if the government starts  spending a ton of money and during Covid most of  

it's printed money that will push inflation up and  if the Central Bank starts slashing interest rates  

that will also push inflation up but they're  different things right and I think the most  

important thing to understand if you take anything  away from this video is that we are clearly using  

the wrong policy to fix the inflation because if  we cause the inflation by giving money to the rich  

then the way to fix it is to take money from the  rich, if we try to fix it by raising interest rates  

what does that mean well interest rates  are the money that is paid by borrowers  

in the economy to lenders in the economy and  I remember we've covered this on the channel  

before that for every borrower there is a lender  for every lender there is a borrower okay it's  

always perfectly matched you can't borrow money  from nobody, you can't owe money to nobody okay  

so really when the Central Bank raises interest  rates what they are doing is they are benefiting  

the lenders, so who are lenders? lenders are people  with large amounts of money who lend money out

you know largely it's wealthy individuals you know  sometimes it goes through your bank so if you  

have a huge amount of cash in the bank, your bank  lends that money to government, your bank lends  

that money to mortgage borrowers, if you have a lot  of money in your pension, your pension fund lends  

that money to the government, lends that money  to mortgage borrowers right so people with large  

amounts of cash benefit when interest rates go up  and the people who lose are people who have large  

amounts of borrowing which is the government first  and foremost and people with mortgages people  

with large mortgages which is largely younger  homeowners & also it doesn't include homeowners  

from rich families who don't have to use  mortgages right so when you raise interest rates  

often you are benefiting rich people because  they have a lot of cash and your disadvantaging  

the government and mortgagees; people who have  mortgages, that is increasing inequality and it's  

not as simple as that right because there are  some poorer people have all of their money in  

cash you may feel that they benefit there might  be some rich people have a large amount of debt  

for example I have a large amount of debt as part  of my sort of trading portfolio but in general  

when you raise interest rates you're moving money  from borrowers which is mortgage holders and 

the government, to lenders which is rich  individuals especially older rich individuals so

when the government has given money  out it's caused two things to happen  

1. a massive increase in inequality & 2. a decrease in the value of the currency which we see as inflation

if it wanted to perfectly offset that then it would tax the rich back but for some reason, which as you know

i'm constantly maddened about, taxing the rich has never really been seriously in the discussion here even though  

we've seen a massive increase in the wealth of the  rich, so instead we've gone for the default which is 

raising interest rates now raising interest rates does increase the value of the currency so  

the one half of it which is the devaluation of the currency you are fighting by raising interest rates  

but the other half which was an increase in  inequality, raising interest rates makes that worse 

right because you're forcing borrowers who are often not wealthy families, if you're wealthy you

wouldn't take a mortgage and the government which means the taxpayer which means  

ordinary working people because as we know the very wealthy don't pay high rates of tax  

the taxpayer and mortgage holders have to pay more  money to the cash holders which are the people who've 

accumulated huge amounts of cash during Covid, which is the rich, so in trying to fix with monetary policy  

by the bank of England a problem which was caused  the fiscal or taxation policy by the government  

you've ended up trying to fix a crisis  of inequality by more inequality so that  

that means that the long run situation for the  economy and for for inequality is extremely bad  

but it will succeed eventually in bringing  inflation down and this I think is  

there'll be people who there will be some people  who won't like me saying this it will be unpopular  

with some there's been a lot of criticism from  the left of the central bank for their interest  

rate policy they're saying you know why are  you raising interest rates it's hurting people  

if the bank of England kept interest rates at  zero the pound would have collapsed in currency  

markets the pound would be worth half of what  it is now we'd be seeing an inflation crisis and  

I mean it would be very similar to what happened  after the trussonomics disaster in Autumn so

I think people who are pointing at the Bank of England (BoE) and saying this is your fault  

listen I've got no love lost for the Bank of England or Andrew Bailey  

um I think that they have no choice but to do this, the problem is because the government  

and the broader economics discussion in the media have said nothing about taxing the rich  

which would be the correct way to fix it, the Central  Bank has no option but to raise the interest rates  

you know if we I think an interesting thought  experiment is to sit and think what if we reversed  

the cash distributions of the last three years  what if we went to every single person in the top  

10% of the country and said we want £140,000 tax  that would be a reversal like that it seems crazy  

but that is what we have done in the last 3  years we've distributed £140,000 to the richest  

5 million people in the country each person  right so if we took that back you would see  

a collapse in inflation a massive collapses these  people desperately tried to raise that cash right  

so the interest rates had to go up because we have  refused to have the discussion about taxing the  

rich and if you give a ton of money to the rich  inflation will increase if you refuse to take the  

money back the only option central banks have  to try and keep inflation is to raise interest rates

and it will happen but in terms of looking  forward I believe that the inflation will come  

down when it safely quickly which means that the  central banks including the Bank of England,

the Fed, the European Central Bank (ECB) will stop raising rates relatively soon um I think that once that  

inflation slows down you will start to see how  severe the economic weakness is underneath how  

big the increase in poverty is and you'll probably  start seeing in my opinion interest rates start  

to fall relatively quickly but that that depends  on whether there's a bit of a balance here right  

because because we've seen such a big increase in  poverty it creates creates pressure on governments  

to do more deficit spending and pump more money in  & if governments are forced to pump more money in 

that could keep inflation higher over the long  term and I think what you're seeing here is kind  

of the death throws of an economy which has given  up on tax taxing the rich so if you cannot tax the  

rich and the rich have all the assets then you end  up in a situation where whenever there's a crisis  

the rich get a ton of money and you can't get  it back so the only option you have is to raise  

interest rates and that causes more poverty which  means you have to give more money to the rich  

it's a question basically you're trying to solve  the question of how do you prevent poverty when  

you are giving all of the assets to a group  of people that you can get nothing back from  

it's almost a question of imagine you gave your  house and all of your assets everything you own  

to some rich guy and then you took a massive  loan from him and you gave the money back to  

him so now you're in debt to him he owns  everything how can you not be poor and the  

answer is you can't so if you keep trying to  provide living standards without the ability  

to tax the people who increasingly own everything  it's not possible so you will continue to see  

this Balancing Act between the government has to  spend a deficit which keeps inflation High but I  

think what you will see in this country I think  the conservative government has a big political  

problem with high interest rates and that takes  us to our next point which is house prices so

how do you buy a house in a world where  you're poor and the rich have everything  

the answer is you borrow the money from the  rich and that that's mortgages and mortgages  

have been the way that we have squared this  circle for the last 20 years in this country  

which is the conservative government has quite a  political need for people to own property because  

private renters and social renters  almost never vote conservative  

um they need house prices to rise because  that's the only reason that older people feel  

comfortable because the house prices are rising  so they need to keep people owning property  

but inequality is rising and rising, the middle  class are losing their assets so how do we keep  

ordinary people owning property when inequality is  rising because rising inequality of wealth means  

you lose your assets but we need you to lose your  assets but keep your house how is that possible  

the answer is increasing debt so you can keep your  house and you can just get more and more and more  

and more in debt to the rich that way you stay a  property owner so you keep voting conservative but  

you become poorer and poorer generation after  generation so it's really mortgages and debt  

I like the magic solution that works for the  government and that has been working for them  

for the last 15 years quite well politically  because the rich get richer and richer because  

you owe them more and more and more money but you  keep your house so everybody's winning the rich  

get richer you get poorer but you keep voting for  them because you're a homeowner and what you want  

is for asset prices to go up it's really really  good for the conservatives and it's really bad for  

people in general and this is why higher interest  rates are a disaster for the conservatives because  

they need ordinary people to be taking huge  amounts of debt and huge amounts of debt are  

not affordable for ordinary people at interest  rates of six seven eight percent which is what  

a lot of mortgage rates have gone up to right  so they need interest rates to come down they  

need interest rates to come down desperately so  I think what they will do and what you're seeing  

them doing is they will try their best to run as much as possible an extreme austerity government  

in the next year and a half in a desperate  attempt to bring inflation down quickly  

so that interest rates come down and as soon as  interest rates come down you will start to see  

those house prices go up because of the thing we  mentioned at the beginning of the video which is  

that 700 billion pounds which has been given out  by the government the last three years is still  

sitting in the bank accounts of the rich and this  is the big conflict we have right the rich have  

all that money and what would the rich people  do with money they want to buy assets so house  

prices want to go up but rich people themselves  don't want to go out and buy a ton of houses right  

because buying houses is a hassle you know you  need to manage tenants, super rich people don't

want to be having to fix poor people's boilers things  like this they don't want to be involved in stuff  

like that so what they normally do is they lend  the money out they lend the money out but suddenly  

poor people can't afford to borrow the money  anymore so it's created this it's created this  

two forces in house prices which is on the  one hand house prices should be going up  

because the rich have got a ton of money and it's important to be clear house prices have

gone up by about 20% since the beginning of Covid, and now they've come down about 3-4%

so that force of the rich having a ton of money  push house prices up but now the mechanism by  

which rich people buy houses and I think  this is an interesting thing to consider  

mortgages are in a very real way  the way that rich people buy houses  

so I've got half a million pounds and  you've got nothing and you want a house  

there's two ways I can give you housing I can  buy the house myself and I can rent it to you  

or I can lend you the half a million pounds you  can buy the house and instead of paying rent you  

pay me Interest financially it's very similar  if you think about it in both cases I provide  

all of the money for the house to be bought and  in one case you pay me rent and other case you  

pay me interest so really mortgages are the way  that the rich buy houses for the poor but that  

channel has become blocked because the poor can no longer afford the interest um so I think there are  

two things that can possibly happen here and the  way it will play out will depend on the country  

one is in this country I think the government  will do everything they can to bring inflation  

down but that will come at the cost of really  crushing the economy and crushing ordinary people  

um I think the way they'll hope to survive that  is by making a bit of room to like throw a load  

of money immediately before the election they  will try to bring the interest rates down and  

as soon as interest rates come down then you will  see this flood of money that the rich have again  

they continue to push house prices up even though  they've already gone up 20% I think they can go up  

a lot more if you look at after 2008 house prices basically doubled over the next 10-15 years 

and I think they can do that again so if the interest rates come down then this channel  

will open up again the interesting question  is what if interest rates don't come down  

which is what could happen if governments  are forced to keep running big deficits  

in that case you'll have the question of how  do the rich people buy their houses when they  

can't lend the money out and I think what you  will see if that happens is the rich will start  

buying the houses through corporations and you  will start to see much more corporate landlording  

so I lived in Japan for a long time and I  think increasingly in the US you're seeing  

rather than the rich lending the pool of money  via mortgages the rich pull their money together  

into corporations so there's I think it's is  it BlackRock or is it Blackstone in the U.S  

it's a massive company which owns a huge amount of housing, rich people pool their money together  

in corporations the corporations buy the houses  and the corporations lend the money out because  

it's quite interesting at the moment you're  seeing rents go through the roof at the same  

time as house prices go down and the rich are  sitting on a huge pile of cash so it's a it's  

a massive investment opportunity for wealthy  people with cash because rents are super high  

and they've got a ton of money and the prices are  cheap so the rich should be buying these houses  

and bringing the rent in but the problem simply  is rich people are you know too lazy to go  

and buy 10 houses right and it's becoming more  it's it's cumbersome right rich people don't  

want to be becoming massive buy-to-let landlords right so but either way the money is there  

and that will force house prices up in the long term  and I think what you're just seeing is the the  

mortgage channel get blocked in the meantime um  but what you would inevitably see in any case is  

the massive gift of cash to the rich will manifest  in increased inequality of real assets  

either through much higher mortgages which means a  much higher amount of debt from ordinary families  

to the rich, we've already seen a much higher debt  from the government to the rich and what you will  

see is increased direct holding of properties  I think it's important to realise when that  

mortgage channel gets blocked it provides a massive  opportunity for rich people who can just pay cash  

they don't need a mortgage they can just buy cash  at the cheaper price get in that massive increase in  

rental income rents are going absolutely through  the roof and they can profit from that so every

single step of the way, Covid management  meaning massive cash transfer from the  

government to the rich, higher interest rates meaning higher debt payments from mortgagees and the  

government to the rich and falling house prices  at the same time as high mortgage rates means  

cheaper access to housing if you have the cash,  which only rich people do, every single step of  

the way is benefiting the rich and hurting ordinary middle class families and there's nothing that 

will prevent this if we don't start discussing more seriously taxation of the rich

so to make clear the predictions  you know inflation will come down  

um it will still be positive for a while  interest rates will stop going up and I  

think they'll probably start coming down  it might take a year or two um house prices  

they're clearly falling at the moment even though  they're still significantly higher than pre-covid  

I don't think that will last I think as soon as  interest rates start falling they will start  

going up and even if they don't you'll just start seeing more more Corporate Land lording

& I know these are pessimistic predictions uh  we get a lot of people saying that these are  

pessimistic predictions but this is what happens  if you don't text the rich and if you don't want  

bad outcomes you cannot allow inequality to  get higher and higher so support the channel  

we're always pushing for higher taxation of the  richest and that's you know that's the only way 

we're going to prevent these things I know  that these are not good for ordinary families  

we can't fix it without without improving  taxation policy so let's do that okay thats all