The UK Housing MarketMeasured Decline or Total Collapse.ppt

Why ?(6) Oil and commodity price spikes driven by high resource-use Asian and other emerging market growth spurt in 2006-7. Exacerbated by hedge fund and other speculation. Raised inflation and eventually cut real income growth in industrial economies. Why? (7) Recent policy errors compounded crisis: Lehman Bros default. Failure by central banks in Europe to respond to crisis in October and support well co-ordinated treasuries. See ‘The folly of the central banks of Europe’ /index.php?q=node/2488 Initially wrong US bank rescue plan (TARP). Household credit channel Central to understanding prospects in ‘Anglo-Saxon’ economies and how other economies differ. Shift in credit supply function e.g. ‘credit crunch’ has profound effects not just on level of house prices and consumption but on how monetary policy works. One channel in following chart: Lower Demand for Housing Slower GDP Growth ↓Home Prices Wealth, Slower Consumption Mortgage and Housing Crisis Less Home Construction Lower Capital of Financial Firms ↑ Counter-Party Risk, Money Bond Mkts Hit Credit Standards Tightened on All Loans Global Prospects All parts of global economy are now in Keynesian-style demand-deficient recession. Fiscal and monetary policy solutions are well-known when inflation is dead. Belated ECB interest rate and fiscal loosening to come. Stuttering recapitalisation of the banking system is in train, plus ‘son of TARP’. Prospects cont’d Eurozone policy failures have continued. In Nov-Dec. ECB cut interest rates less than fall in expected inflation. In Feb. kept rate unchanged, so raising real rate. German fiscal policy late to grasp coming tidal wave on Germany – hoped to free-ride on overstretched US fiscal stimulus. Blockages to sane policy 1. Endemic conceptual/model failure was to omit household credit channel/financial accelerator from CB models. Blockages to unorthodox monetary policy or ‘quantitative easing’: 2. Old monetarist fear that “‘printing money’