Why don't construction prices go down?

There is no investment brake. There is a brake on social policy and subsidies with a watering can. It is absolutely right that the state must prioritize which expenditures can be made. Prioritizing and mediating different wishes is the very essence of democratic politicians' task. The German state does not have a revenue problem, but a massive expenditure problem. An expenditure problem cannot be solved by more money, neither for a private person nor at the state level. No one trips over the debt brake itself, but rather its massively abusive circumvention. Whoever justifies an exception by an emergency should also use the exception for the emergency and not for something else. And sensibly, one records expenditures when they occur and not sometime in the past, ideally during the predecessor government’s time...

At first glance, what you write sounds completely logical and reasonable. Nevertheless, I have to fundamentally disagree – which of course calls for a good justification. Therefore, my reasoning: a) One person’s expenditures are another person’s income. b) The economy only grows if the sum of incomes over a defined period steadily increases. c) From a macroeconomic perspective of a country(!), there are four sectors that receive and spend: companies, private individuals, the government itself, foreign countries. If a) – c) are set as premises, the following logically necessarily results: If at least one of the four sectors takes in more than it spends, the economy collapses, unless another sector spends more than it takes in. Ergo, saving in one place requires debt in another place for the economy to run or even grow. In Germany, the private sector has always saved, and for a few decades now also the corporate sector. The German state’s debt uptake has also been smaller for decades than the savings of the two sectors mentioned above. Ergo, Germany has lived for decades on debt incurred abroad. This can be seen quite concretely as a number in the annual current account surplus. This dependency relationship can be dissolved: Either by knowing the strategy to make the corporate sector a debtor again (I do not know any and do not know anyone who does), or if the German state itself takes on debt. Ergo, a debt brake is nothing other than cementing dependence on foreign debt. If a state does not spend money directly on investments, but for example on social issues, it also ends up again with companies, because the savings rate of social benefit recipients is probably very close to zero. It is therefore indirectly also an expenditure to the economy, which in turn finds a better investment environment than it would without these state expenditures. Ergo, a debt brake can also always be called an investment brake. One could also say a revenue brake. It’s about reframing: It initially sounds good to brake debt. But economically speaking, it also means braking income. A state is not comparable to a company or private individual: It is a completely independent sector that moreover has its own currency in which it can never become insolvent and is also assigned the task of looking after the overall economy. By the way, I am open to contradiction and criticism, but please align it with the above logical chain. I can no longer hear sentences like “But we can’t…”. We can do anything, we just then have to live with the consequences.

Why don’t house prices fall?

Development of house prices in Turkey from Q2 2017 to Q2 2023


The currency of Turkey has lost significant value. Inflation rates of 50 percent are mentioned. In response, the central bank has massively raised interest rates to contain inflation and support the currency.

While interest rates were still at 5 percent in 2012, the Turkish central bank has now raised them to 30 percent. With such a high interest rate, most people would expect a falling real estate market. The thesis here, that rising interest rates automatically lead to falling property prices, is disproven.

Now, property prices in Turkey have risen along with interest rates. And significantly so. Exactly the same will happen here in Germany.

But why? Actually, no one should invest at such high interest rates. It does not matter.

Because rising interest rates are a consequence of inflation and not its cause! When inflation rises, prices also rise. Then interest rates follow. Then prices again. And then interest rates again. The development of interest rates lags behind the inflation trend.

Even though we are currently seeing a short phase of inflation here, it will pick up speed again. The chart illustrated above is therefore very interesting.

By the way, I am open to objection and criticism, but please align these with the above logical chain. Sentences like “But we just can’t…” I can no longer hear. We can do all sorts of things, but then we must also live with the consequences.

There are several problems:
1. Money that the state can spend must first be collected and that through everyone's favorite: taxes. The collection of taxes and levies is complex, but the effort does not bring a direct macroeconomic benefit. Rather the opposite, high levies are counterproductive. There are many people who work only 80% because the fifth day of the week has the highest marginal taxes.
2. Debt acts here like an elegant solution but restricts the scope for action of future policies. Growing out of debt is theoretically possible, but in reality unlikely with current 2.5-3% interest on long-term federal bonds. Roughly calculated, this requires a growth of 5-6%, which we have not had for a long time. Debt brake or not.
3. You ignore in your consideration that saved money does not simply disappear in a safe. Saved money from private individuals and companies is reinvested in one form or another, either in tangible assets (real estate, companies) or debt.
4. Debt does not conjure anything up. All expenditures of an economy must be generated from its productivity (Mackenroth thesis) or come from abroad.
5. It becomes downright absurd when not real economic actors act as creditors, but the central banks. In this case, with an unchanged economy, money is simply created out of nothing. This logically leads to inflation.

A state is simply not comparable to a company or private individuals: It is a completely separate sector that furthermore has its own currency, in which it can never become insolvent, and is equipped with the mandate to look after the overall economy.

Borrowing in its own currency from real existing creditors abroad is only possible to a limited extent because eventually the currency depreciates. And then either the central bank prints money without backing or there is debt in foreign currency at which one can very well go insolvent. Usually, both occur together. Argentina is a deterrent example here. With every state bankruptcy comes an inflation surge. Inflation destroys the wealth of the middle class the most, as a larger part here is invested in deposits and interest products. Accordingly, there is hardly any middle class left there.
Greece is also not recorded in history as a success story with high debt. Without intervention from neighbors, bankruptcy would have occurred here.

Thank you for the concrete criticism. In my opinion, I have to start here:

3. You ignore in your consideration that saved money does not simply disappear into the safe. Saved money from private individuals and companies is reinvested in one form or another, either in tangible assets (real estate, companies) or debts

That is simply wrong. The reason is simple: if it had been invested, there would be no excess income since the money would have been spent on investments. The only logical rescue would be that saving in one period is represented as investment in a subsequent period. But that would mean that savings are the basis of investments. In the overall economic view, however, investments precede savings, not the other way around.
In other words: I did not overlook this but from the outset assumed the macroeconomic context that I comes before S instead of the other way around.

4. Debts do not conjure anything up. All expenditures of an economy must be generated from its productivity (Mackenroth thesis) or come from abroad

But that is not the Mackenroth theorem. This states that for one period there can only ever be a redistribution of the returns of the production performed. Where these returns come from, Mackenroth does not say. That they could not come from debts is therefore not only not part of the theorem, it is not even plausible (which does not mean that they have to or should come from there).

2. Debts act here like an elegant solution but restrict the scope of future policy. Growing out of the debts is theoretically possible, but in reality unlikely with currently 2.5-3% interest for long-term federal bonds. This roughly requires growth of 5-6%, which we have not had for a long time. Debt brake or not.

Why should the state constantly grow at 5% to service 2.5% interest? Do you have to do that with a mortgage? No!

5. It becomes finally absurd when not real economic actors are lenders, but the central banks. In this case, with a constant economy, money is simply created out of nothing. This logically leads to inflation.

But the money mostly came from the central banks before as well. It was only previously routed through commercial banks so that they also get a piece of the cake. But bonds are not purchased with equity capital. I don’t know why it should be more inflationary than before to remove the intermediary. I rather believe that there is a misunderstanding here, namely that bonds are always bought with already existing money if it is not done by the central bank. Not at all.

All in all, you point out problems that you see, but you do not address my core argument at all. This was formulated as a question:

Who makes the debts that are necessary with a growing economy with saving sectors, if everyone wants/should save?

Something different for a change on the topic

Zehnder ComfoAir q350 ventilation unit with enthalpy heat exchanger

2021: €2525
2023: €2499

Same online shop.

Processed a few bags of Maxit 925 today... -6% compared to spring... And what I also learned is that if I ever have leftover coal, I'll buy 5 construction dryers and rent them out... Apparently, you can make good money with that too