Sunday, Mar 29, 2009
Monetary growth drives the housing bubble
UK bubble: Do you think there might be a connection?
A neat chart linking UK housing prices with the growth of the money supply. The relationship looks uncannily close.
Posted by inflationwatch @ 09:37 AM (731 views) Add Comment
7 Comments
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1. icarus said...
But M4 is still heading north at around 18% p.a. while for over a year house prices have been going in the opposite direction even faster - and no sign that either is about to change direction.
2. uncle tom said...
Both are essentially exponential curves, so it does not follow that they are intrinsically linked; only that they have progressed in a similar fashion, although some factors, such as inflation, have a broadly similar impact on both.
What it does show is that the housing market has come to the end of a boom that started half a century ago, and that the money supply is heading for Armageddon..
3. stillthinking said...
M4 measures debt (debt as money), so this is not a case of one influencing the other, or correlation, they are basically the same thing. If you borrow money to buy a house that money shows up in M4.
That there is some impetus upwards is neither here nor there, the expectations are for a sharp downturn, ie. deflation, and we move out of mild staglation.
4. mander said...
What about 3.5 income to loan value including BTL? Money supply will be fine then as it will be direct in more real businesses.
5. scandinavian pessimist said...
What a load of b*llocks!!!!!! The units on the Y-axis are arbitrary for both curves so the "97% correlation" is achieved by a simply stretching one of the curves to fit the other. You could make the HPI curve correlate to the number people watching Eurovision this way. Come on guys, surely this site deserves better than this.
6. Missouri-man said...
Agree with icarus and scandinavian pessimist - totally unconvincing!
All it shows is that if you pump a lot of money into the economy, primarilly into ever bigger mortgage offers, then the price of houses goes up. Is this news?
The so-called "correlation" breaks down totally for recent months where M4 has gone up even faster, but house prices are crashing.
The author (Alice Cook) appears to believe that simplistic money-supply arguments explain just about everything. Increases in money supply alone don't explain house price inflation (or any other kind of inflation); the money has to be lent, borrowed and spent.
7. Missouri-man said...
Agree with icarus and scandinavian pessimist - totally unconvincing!
All it shows is that if you pump a lot of money into the economy, primarilly into ever bigger mortgage offers, then the price of houses goes up. Is this news?
The so-called "correlation" breaks down completely for recent months where M4 has gone up even faster, but house prices are crashing.
The author (Alice Cook) appears to believe that simplistic money-supply arguments explain just about everything. Increases in money supply alone don't explain house price inflation (or any other kind of inflation); the money has to be lent, borrowed and spent.