World Economic News
Scotsman Cites Economist on Danger of Housing Bust
"Housing Boom Faces Global Meltdown," declared the headline in the Edinburgh daily The Scotsman March 18, above an alarming feature on the coming housing crash. It's based on a story in the upcoming issue of the London Economist, which is not yet available to the public. The Scotsman says:
"The global housing boom that has propped up the world economy in the face of falling share markets in the past few years is teetering on the edge of a crash, it was claimed yesterday, writes Frank O'Donnell. House prices in Australia, Ireland, Netherlands, Spain, Britain, and the United States will fall by at least 20 per cent over the next four years, according to a report in the Economist. The trigger for a house-price crash could be a relatively modest increase in interest rates because total levels of household debt are at record highs. Pam Woodall, the magazine's economics editor, said it was wrong to assume rate rises on the scale of the late 1980s would be required to hit house prices, as the major indicator for the residential marketthe ratio of house prices to average incomeis at record highs in the U.S., Australia and the UK.
"The U.S. in particular has seen the biggest rise in house prices in its history since the mid-1990s, and a sharp fall in the market in the largest global economy would tip the world into recession. 'The US has very little fiscal or monetary ammunition left to support its economy if house prices collapse,' she said. 'If the U.S. falls, it would be the first global property bust in history.' Property is the biggest business in the world, accounting for 15 percent of global gross domestic product, with assets of $50 trillion, compared with $30 trillion in shares."
Economist Warns Housing Vastly 'Overvalued'
"Homing in on TroubleSell, Sell, Sell!" reads the headline of a report in London's Economist, in the March 13-19 edition. It documents the dramatic increase of house prices in the U.S., Britain, and other countries in recent years. "House prices are at record levels in relation to average income in America, Australia, Britain, Ireland, the Netherlands and Spain. The prices of British, Irish and Dutch homes are now 50% above their 30-year average relative to incomes. By the same gauge, property is 'overvalued' by 23% in America, by 33% in Australia, and by 68% in Spain.
"The main reason why house prices have been rising so rapidly in so many countries is the historically low level of interest rates, which has allowed households to borrow more to buy a home." What we are experiencing now is "irrational exuberance" and "the Bank for International Settlements (BIS) is keeping a close eye on the housing market. After stock markets tumbled, the boom in house prices helped to support spending by boosting household wealth. If prices went into reverse the world economy could be in big trouble."
The Economist then features the various papers on the housing markets which the BIS included in its latest Quarterly Review. "Translated out of BIS-speak, the central bankers seem to be worried," it concludes.
German Leaders Know System Is Finished, But Have No Plan
The German political class knows that the financial system is finished, but they don't have a plan, and refuse responsibility, stated a Frankfurt banker in a private discussion with EIR on March 17. The banker had a meeting, on March 15, with members of the CDU (Christian Democratic Union) presidium, where he presented his view that an unprecedented global financial crisis will soon erupt, probably even before the end of the U.S. Presidential elections. The tax cuts have failed to push up the U.S. economy, he said; the U.S. job market is still a disaster, and therefore, the precarious situation of private households is about to trigger a dramatic downturn in the housing market. This will hit a global financial system which is characterized by incredible amounts of unpayable debt and asset price bubbles, he continued. One external shock could be enough to bring the whole system down. The banker said the top CDU members basically agreed to his analysis. They are alarmed, but they have not the slightest idea what to do about it.
He had a similar experience in August 2003, when he was invited by the top aides of German Economics Minister Wolfgang Clement to present and discuss his view of the bankrupt global financial system. The reaction, he said, was total impotence. Of course, they have no plan. But it's even worse. They even refuse to be responsible to intervene in this situation. Typical of the attitude of these "experts": They asked the banker for the likely timing of the of inevitable U.S. housing crash. When the banker said, it will definitely take place in the next three years, but it could even happen within the next three months, one of the SPD (Social Democratic Party) members said: "Let's hope it happens in three years. Then we are gone anyway, and the opposition has to deal with the problem." In private discussions, they asked the bankera gold and silver bugfor hints where to put their money.
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