About a month-and-a-half ago, I gave a presentation on the housing bubble in an economics of money and banking class I was taking. I have been meaning to explore some of the parts of the presentation on this blog, but I haven't gotten around to it. Anyway, I thought I'd share the outline of the presentation with you, although it lacks my commentary. I can summarize my commentary as follows: All of the hypotheses about what caused the bubble have problems, although Ben Bernanke's "global saving glut" idea is the best so far.
You can read the outline of my housing bubble presentation here.
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The US inflation rate averages 4.6% since 1940. There was a brief respite 1979-83 when Volcker boosted interest rates to squeeze it out. This restored wage share but provoked a mid 1980s recession with high unemployment. Recovery from this recession caused a secondary rebound in wage share and the 'prosperity' of the late 1990s (remember the Clinton budget surpluses?) This prosperity, together with consumer desire to escape the 4.6% inflation and low interest rates to boost the stock market set off the housing bubble.
ReplyDeleteVolcker's inflation fighting measures postponed the GFC by about 20 years.