September 29, 2006

Robert Shiller asks - "If house prices crash in the US, the bastion of capitalism, could it destroy confidence and end the boom in other countries?"

Robert Shiller, yes, my favorite housing bear and truth-teller, had this op-ed today in the Korea Herald, where he raises the point that's been in my head for a bit - can the US housing crash kill housing bubbles throughout the world?

Obviously I'm living in bubble-central, London, England, where I see daily reports now in the papers on the US crash. But Londoners haven't put 2+2 together, and they seem to think what happens "over there" won't affect psychology "over here". Guess what - it will. The exposing of the Ponzi Scheme in the US will draw light and heat to the same Ponzi Scheme anywhere else it's being played. Especially in London.

Also, as HP'ers know, Robert Shiller (author of the ultimate bubble book "Irrational Exuberance") is a professor of Economics at Yale, and he looks like he's taken an Economics class or two in his day.

Compare his writings and thought pattern to the incompetent, corrupt and intellectually challenged Nicholas Retsinas, head of Harvard's REIC-polluted Joint Center on Housing Studies, who looks like a struggling freshman at ASU by comparison.

Here are some of Professor Shiller's latest musings on the ongoing housing bust. Read the whole article, and also google him and read his past stuff too. Yes, he was early in calling the bubble (again). But yes, he also got it right.

Many places around the world have been in a housing boom since the late 1990s. As I argued last year, in the second edition of my book "Irrational Exuberance," the boom is rooted in speculative investment by ordinary homebuyers, fueled substantially by the worldwide perception that capitalism has triumphed, and that all people must look out for themselves by acquiring property. Convinced that private ownership has become essential to smart living, buyers bid up home prices.

Moreover, the fear that one must get in on the boom before it is too late often drives people to bid up home prices faster now.

But the boom generated by such beliefs cannot go on forever, because prices can't go up forever, and there are already signs of a hard landing.

In the United States, newspapers and magazines are trumpeting reports in the last few months that the decade-long boom in home prices may be at an end, and that the bubble may be bursting. The psychology has suddenly changed, creating widespread fear of sharp drops in U.S. home prices.

If home prices crash in the United States, the bastion of capitalism, could it destroy confidence and end the boom in other countries? If so, could a worldwide recession follow?

13 comments:

Concerned said...

Of course it will....when America snezzes, the rest of the world catches a cold.

There is no difference between the US and the rest of the world. When there are no buyers, there are no buyers....simple as that. The law of supply and demand proved true on the way up of this boom, and it will prove true on the way down as well.

Simple as that.

Anonymous said...

Ponzi Schemes end when the light comes on

Anonymous said...

More of the usual, repeats from Keith, the same crap everyday.

Here is an Idea Keith why dont you wite a book on how to swallow without choking.

Anonymous said...

I'm in Toronto and we keep hearing about how "it's diferent here" and "real estate will never go down, buy now or be priced out forever" where have I heard that before? Oh yeah, California before the crash started. At the rate they are overbuilding condos here there's no way a crash won't happen. Intrestingly overbuilding of condos proceeded the last crash in 1990. But you know, real estate never goes down.

Tom DC/VA said...

"If home prices crash in the United States, the bastion of capitalism, could it destroy confidence and end the boom in other countries? If so, could a worldwide recession follow?"

If there is a crash, which I'll define as >10% rate of decline in nominal prices, a depression will follow.

Anonymous said...

As mentioned in the earlier crimson related thread... first of all Keith, Harvard is an overrated American University. It has a lot of cash, Wall Street connections (see Abby Cohen and everyone else at Goldman Sachs), Govt/Law outplacements, etc and is able to rest on the laurels of luminaries like Ralph Waldo Emerson, Oliver Wendell Holmes, Buckminster Fuller, and a slew of America's most famous, earlier times intellectuals and leaders. Today, however, there are numerous institutes that compare well, Johns Hopkins/Rockefeller for medical research, Columbia/Yale for international studies, MIT/Berkeley for the sciences and engineering, Wharton/LSE for finance, Univ of Chicago for economics, etc. So stop worrying about the place with all the dinero and old boys networks.

Anonymous said...

What's the problem?

Harvard does Suck!!!

So does borka!

Anonymous said...

The New York magazine interviews Nouriel Roubini

http://nymag.com/realestate/index.html

http://nymag.com/realestate/features/21675/

Disgorge! said...

Convinced that private ownership has become essential to smart living, buyers bid up home prices.

This comment intrigues me. Does Schiller suggest that we all rent, or find alternate accommodation (tents?). I like what he's saying, just cannot make out what the alternatives are.

Anonymous said...

In my mind, the wrong side won the Cold War.

Capitalism is just feudalism in new clothes.

And I hate america.

Anonymous said...

Well then, there's the door use it!

sal said...

Glad to hear this is in the Korean papers.

Aren't the Koreans one of the biggest MBS buyers?

Sooner or later these foreign MBS buyers have got to dump this stuff and send it packing back home.

They'll help us crash this stupid market.

BTW. where's your post on the new lending guidelines Keith? Would've thought you'd be right on that one. It's big news!

Anonymous said...

HARVARD SUCKS

HARVARD SUCKS

HARVARD SUCKS

HARVARD SUCKS

HARVARD SUCKS

HARVARD SUCKS

HARVARD SUCKS

HARVARD SUCKS

HARVARD SUCKS

HARVARD SUCKS