It's clear from this that the same factors that threaten to pop the U.S. real estate bubble would also pop a worldwide real estate bubble. Like the popping of Japan's real estate bubble in 1990, this could lead to long-term recession.
I believe that the world's central banks would flood the world with liquidity, to prevent this from happening. Both Japan and China have already done this, with the central banks "creating" hundreds of billions of dollars worth of their own currencies, which they used to buy U.S. Treasuries.
This is a major reason that I believe that the economic problem of the future will be inflation, not recession.
Wendy
OK Wendy, or any other inflationists out there, it's time to step up to the plate. Here are the questions I would like you or any other inflationist to address:
- Can you please define the ending point in your cycle? Does the cycle end when everyone has 3 houses and no renters? 20 houses and no renters?
- Can the government print money from now until the end of time to forestall a recession? If it's so easy to prevent a recession by printing money, why do we ever have them?
- Is there no end to the demand for credit regardless of wage growth and outsourcing and loss of union and other jobs?
- Can Japan keep printing money and buying US treasuries until US treasury rates hit zero? What then?
- Can home prices keep climbing exponentially although wages do not support prices?
- How are people going to pay property taxes and medical expenses unless wages pick up?
- Is GM about to offer unions more money?
- Is outsourcing to India and China about to stop?
- Are telecom mergers slated to destroy 20,000 jobs this year going to reverse?
- Are bank mergers and other mergers that will destroy jobs going to stop?
- Is productivity going to fall off a cliff so that more workers will be needed tomorrow than are needed today?
- Are wages and employment going to rise as long as outsourcing, mergers, and productivity are increasing?
- Is the demand for housing infinite regardless of price?
- Is the willingness to supply credit for housing infinite regardless of price and regardless of the credit worthiness of borrowers?
Right now people are willing to borrow and banks are willing to lend on the foolish belief that housing prices can rise forever. We had the exact same belief about the stock market in 2000. The only logical way to believe in inflation is to believe that credit expansion and the willingness to lend it can go on forever in spite of falling wages and job losses to mergers and outsourcing. Wait a second. That's not logical at all. Then again, perhaps you think outsourcing will stop, GM will raise wages, airlines will become profitable, medical expense will drop, and property taxes will not increase with rising home prices. Hmmm that does not exactly seem very logical either. Is this a new paradigm such that logic and fundamentals will be meaningless from now until forever more?
I have one final issue I would like inflationists to address: It would seem to me that hyperinflation would bail out debtors at the expense of banks and lenders. Are banks going to want to do that? If so, why? Wouldn't that make all of the mal-investments into property a smart thing to do? Does that seem likely or logical?
OK would some inflationist out there please tie all of those questions together for me in a nice logical reply? I am getting tired of the short answer always offered to every deflationist argument: "The FED will not allow deflation and will print its way out of it". It is time for someone to step up to the plate and put some consistently logical reasons together addressing all 14 questions I laid out above and then go on and tackle the final nut to crack as to why banks would bring hyperinflation on themselves to bail out debtors at their expense. I have been asking these questions for months and still have not found a taker.
Any takers?
Mikw Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/
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