Wednesday, Mar 12, 2008
Going, going, gone: a rising auction of scary scenarios
FT: Going, going, gone: a rising auction of scary scenarios
There are two ways of adjusting the prices of housing to incomes: allow nominal prices to fall or raise nominal incomes. The former means mass bankruptcy and a huge fiscal bail out; the latter imposes the inflation tax. In extreme circumstances inflation must be attractive. Even if it is not the Fed’s choice, it is what a reasonable outsider might fear, with obvious consequences for all asset prices.
Posted by wojtek @ 10:33 AM (189 views) Add Comment
1 Comment
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1. stillthinking said...
Inflation would be the government solution, but can they do it? Japan couldn't.
House prices are going to come down in real terms either way. Millions of people in the UK have sold the pound short (borrowing sterling to purchase assets), and they need to cover their positions. At the same time. Or get out. They can't do either. They perhaps should have allowed public sector pay to take off but they couldn't because oil, gas, clothes, food and electronics come from foreign countries. The public sector is nearly 50% of the economy, and the private sector is essentially the financial industry.
The UK is badly organised and dependant on imports and we owe more than 100% of GDP.
There isn't a solution. The country will eventually stop pretending to be rich. Eventually, hopefully, we will recover. Before then HPC and recession. Labour can't soften the landing anymore.