From City AM:
Mervyn King argued that “there seemed no reason to expect the worst recession since the 1930s” and nobody saw it coming because "no-one believed it would happen". Actually many people in the City did. They spotted that house price to earnings ratios had reached unsustainably high levels and the only way was down. Of course, banking crises are old as the hills; plus the 1929 Great Crash started in the Florida housing market.
Yup.
Even if you don't know the first thing about banking (and very few ever will, which puzzles me because it is very simple), you must know about house prices - what they are and how they are changing. Once land prices start rising rapidly (far more rapidly than rents), you know that there must be a credit bubble (the two go hand in hand). You know that bubbles always pop and that 'financial crises' can be very unpleasant indeed, particularly when the people in charge are in complete denial that there ever was a bubble in the first place and spend all their time (and our money) on trying to keep it inflated.
Blanchflower is one of the few people to point out that the 1929 crash was a spillover from the 1920s land price bubble in the USA (which continued the 18-year boom-bust cycle of the 19th century), which in turn was the result of a credit bubble (and the usual subsidies to land ownership). The stock market bubble, which popped in 1929 was the result of the people in charge trying to keep the land price bubble inflated.
There is the same level of denial about Japan's "lost decade". Most articles or textbooks refer to the Japanese share price bubble but ignore the Japanese land price bubble which happened at the same time, and which was far larger in magnitude, and involved a far greater amount of credit/indebtedness. And there is the same denial in the UK right now - there is a widely held delusion that if only we can "kick start" the housing market (i.e. get prices back up to 2007 levels with a combination of easier credit and yet more subsidies) that everything will magically turn out all right again.
Friday, 4 May 2012
David Blanchlower gives the game away
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11 comments:
Interesting; does that mean that the Japanes have the same reverence for the land as we, the British, have or is it something all human societies share, something to do with Maslow's heirarchy of needs, (http://en.wikipedia.org/wiki/Maslow's_hierarchy_of_needs) and we have it worst than most?
B, it would appear so.
Politicians like exploiting people's more primitive instincts (fear of foreigners, fear generally etc) and "land ownership" is just one of those atavistic things, so depending on how corrupt a political system, it will exploit this instinct to different degrees, and more sophisticated ones will be Georgist - it is "land rent" which is very important, bare "land" is nigh irrelevant.
Two local councillors in this area lost their seats last night because they want to sell a scrubby bit of land for houses and a supermarket.
The campaign against it was very successful and that scrubby bit of land has been promoted to a local green amenity and haven for wildlife.
AKH, they won't be the only two. If you want to get on in politics, you just need to oppose any new development and promise to freeze or cut Council Tax, these lessons are drummed into aspiring politicians from the very start. It is an uphill struggle to convince people that development is, as a general rule, good and that Council Tax is far from the worst tax.
Good analysis, I agree 100%.
Quite. 100% agree. but, no-one wants to hear it, do they?
QP & L, ta. I am baffled as to why most people take so little interest in what the world is actually like* and how things work.
Many people have strong views on what they would like the world to be like, but as they have no idea of how it actually is, how can they possibly know what needs to be done (if anything)?
* to give a simple example everybody believes that "England is the most over-crowded country in Europe" and responds accordingly, even though they've all driven along motorways, been in aeroplanes, looked at maps etc.
...and can't tell the difference between saying that *some* of the green belt could be used to end the housing shortage and saying that *all* the green belt should be ruthlessly covered in concrete.
I hope they succedd in getting the prices right up, because I'd like to sell and live in a caravan/motorhome, if only my wife would agree. One last push, boys.
Bayard - the Japanese had some weird stuff going on, where they could secure a loan to buy property on shares.
So the opportunities for disastrous consequences were "Lombard Street versus a china orange", as the Fat Bigot might say in his orotund way.
"..and can't tell the difference between saying that *some* of the green belt could be used to end the housing shortage".
There is no shortage of housing, that's another Big Fat Lie, there's just a shortage of housing that most people can afford to buy and building more expensive houses in the Green Belt will do diddley squat to address that problem.
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