Thursday, Mar 22, 2007
Lead article this week
The Economist: The trouble with the housing market
The true cause for concern is that just as America's housing boom was part of a synchronised global binge on cheap money, its bust may be part of a global story too
Inevitably, Americans will ask what policymakers can do. It is too late to unwind monetary policy of a few years ago; cutting rates now risks compounding the error. The Fed's main worry is inflation—and rightly so.
Posted by sold 2 rent 1 @ 10:56 PM (195 views) Add Comment
2 Comments
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1. royston said...
This article is right to recognise that the global property boom is down to an excess of cheap money. However, the defense of the 'democratisation of credit' rings hollow. Banks and finance houses have effectively taken over the role of 'printing money' from central banks. Money is not printed any more. It is all now just numbers on spreadsheets, i.e. credit. The finance industry sells off loans and mortgages as bonds to investment managers. This process is called securitisation. I understand the Economist's free market biais leads them to defend credit markets as a financial market. However, this market is different because it encompasses this printing of money effect. That HAS to be regulated. Not regulating it is what got us into this mess.
2. dohousescrashinthewoods said...
Interesting thought: if you keep printing money, you get inflation, which decreases the value of the printed money.
Apply this to credit and you get to a situation where it is in the market's interest to loan out more and more in order to inflate away old debts.