Thursday, Oct 05, 2006

It is different this time round (but for all the wrong reasons)

MoneyWeek: How the US became a bubble economy

Those believing high house prices are sustainable often claim that life is different this time around. This article supports that claim but predicts this time around the difference will make the after effects more brutal and painful. Brutality and pain will occur because the fundamentals of the world's largest economy have changed. I should add, that it only makes sense if you believe high house prices are only possible when people are rich [and stupid] enough to pay inflated prices. If you believe high house prices are a result of excessive demand, then it does not make so much sense. Personally, I thin it doesn't matter how much people want to buy a house [potential demand] if they can't afford one, then they can not buy one - so the argue of excessive demand is pants.

Posted by talking rot @ 01:11 PM (438 views)
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3 Comments

1. bidin'matime said...

Mr Greenspan made his famous remark: "But bubbles generally are perceptible only after the fact. To spot a bubble in advance requires a judgment that hundreds of thousands of informed investors have it all wrong. Betting against markets is usually precarious at best."

It requires no more than the application of common sense to a basic understanding of the fundamentals. Most informed investors are informed by other investors you need to be like the little boy in the story of the Emperors New Clothes prepared to see things as they really are.

Thursday, October 5, 2006 01:35PM Report Comment
 

2. C'mon Correction said...

"Assuming the normal rule that debts have to be serviced and amortized by future income, the great mass of American consumers could never afford the debts they have incurred in recent years. For many, the borrowing has even been the substitute for lacking income growth."

Interesting to see at the end of the article it suggests the US public are taking on more and more credit to subsidise their low incomes.

I suspect this is/has been happening more and more here in the uk, if credit is easy and people can pay more for a house/car/standard of living they shouldn't otherwise afford, then the 'push' for higher wages is going to be reduced and thus less pressure on inflation which leads to lower interest rates which leads to more easy credit - it's self-fulfilling !

Question is - when is it going to be paid back?

Thursday, October 5, 2006 03:17PM Report Comment
 

3. Sam said...

There's also a saying that over a long enough timespan all economists are totally wrong and completely right.

Thursday, October 5, 2006 04:34PM Report Comment
 

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