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Guest wrongmove

Frailty In The Global Housing Market......

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Guest wrongmove

Hamish McRae: Frailty in the global housing market may be more than a mid-cycle bump

"The British banking crisis is past, the US has cut interest rates and suddenly the clouds have lifted. So what is reality, the gloom of the past few days or the apparently bright dawn of now? Or, to put the question more precisely, is the world economy passing a mid-cycle bump, similar to that of 1997, or are the rough markets of this summer early signals that the end of the long boom is in sight?

The consequences of what happened in the UK will rumble on for some time. The crisis was not well handled and we need to figure out why: was it simply human failure, or is there a structural problem in UK bank supervision? Actually, I suspect it was both, but reaching a measured judgement on this will take time. At least the business was eventually done.

We will come back to the UK in a moment, but let's first look forward to the much more significant consequences of the US Federal Reserve cutting interest rates. The markets, not just in the US but everywhere else, are duly delighted but, then, you would expect them to be.

The best starting point is to consider where we are in the global cycle. In the first graph you can see that, compared with the 1980s and 1990s cycles, this one is middle-aged, not young, but not, on past form, due retirement yet. A cut in global interest rates, led by the US, could give it a boost. But it might be only a short-term boost, and I think we have to ask whether the fundamental features of this cycle make it more or less durable than previous ones.

The 1980s boom ended with a property crash, the 1990s one with the hi-tech crash. In both cases the cycle had been prolonged beyond what people might have expected by these exceptional features. This time I can see one massive reason why the cycle might be more truncated and one equally important one why it might be as prolonged.............."

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