Comments: Myths and realities as the dragon's roar gets louder

Dear David
re Nickell ribbing house-price doomsters, I recall the fate of those who called the bursting of the tech bubble too soon.... and the 1980's Japanese stock market and house-price bubbles. In each case, some folk had managed to come up with new-paradigm-why-it's-different-this-time rationalisations by the time the bubbles burst. What all this illustrates is that bubbles in financial markets can be identified with quite high confidence. The hard (if not impossible) job is to say exactly when the bubble will burst. Experience shows you can lose a lot of money (and your job too) by calling it too early or too late. All the best, Laurence Copeland

Posted by Laurence Copeland at September 25, 2005 12:06 PM

Gordon’s “but wait, there’s more” speech was stirring stuff.

Well what he actually said was “And this year let us do more.” but the whole speech did come across rather like an infomercial.

He also said “last year a house price bubble ... In any other decade, a house price bubble would have pushed Britain from boom to bust”.

So it’s official then – it’s a bubble.

He went on, “And we will respond in the pre-budget report to the dream of young couples to own their own homes with our plan for 1 million new affordable homes … striving for Britain to be a home-owning, share-owning, asset-owning, wealth-owning democracy, not just for some but for all.”

A million is such a nice number. Gordon liked the word so much he used it fourteen times during his speech. Unfortunately, prudence didn’t get a single mention.

As for the million new homes, re-reading shows he’s only promising a plan rather than actual homes. But if by some incredible he manages to overcome the vested interests of the land-owning builders and councils he would then probably be thrown out of office by middle-class voters who know only too well what a million new affordable homes would do to existing house prices.

Good luck, Gordon. It’s a good trick if you can do it.

Posted by David Sandiford at September 27, 2005 08:45 AM

For the answers to these questions and more:

1. Why did the US current account deficit start to widen sharply after 1997, reach such a high percentage of GDP, and yet has been relatively easily financed?
2. Why has Asia run such large current account surpluses and built up such a high level of international reserves?
3. Why did the world's central banks push short-term interest rates to their lowest level for a century, and why has this apparently easy monetary policy not led to an appreciable pick-up in inflation?
4. Why have bond yields been so low, and why have they stayed low even when short-term interest rates have been raised?
5. Against this background of wide payments imbalances, why have the margins for risk in corporate and emerging market debt been so exceptionally low?

See RBA Governor, Ian Macfarlane's speech to the Economic Society of Australia:

Posted by David Sandiford at September 28, 2005 11:35 AM

If you take a look at per capita GDP in developed countries you will find that during last 55 years it was about $400 (2002 dollars) per year. This means that there was no any change of this value with time. Accordingly, relative per capita GDP growth was inversely proportional to the absolute value of per capita GDP itself => g=A/G, where g is the relative growth rate of GDP per capita, G is the per capita GDP, A is $400. Extrapolating this relationship one can find that the per capita GDP growth rate is decaying and has an asymptotic value of 0.
Now about so called China incredible growth rate. If to convert these fabulous relative values in absolute one can obtain a value of $350 achieved by China last year. Before it was much lower. It is a long time necessary for China to catch up European countries in the mean per capita GDP absolute growth.
There is no danger for Europe in China economic growth before they can manage to increase this value to $500 or $600. In the long run no one big country could manage to do this in past. Exception is small and dependent economies.
Even in the case if China will achieve this elevated absolute growth is future, Europe will have its $400 average annual increase as before. No signs of any influence of the global economic development on this invariant (fudamental) value are seen so far.
Can provide a more comprehensive paper on this issue.

Posted by I.Kitov at September 30, 2005 10:42 AM