The Global Housing Boom: In come the waves (a cautionary tale)

The Economist ^ | 06/16/2005

[GodGunsGuts]

The worldwide rise in house prices is the biggest bubble in history. Prepare for the economic pain when it pops

NEVER before have real house prices risen so fast, for so long, in so many countries. Property markets have been frothing from America, Britain and Australia to France, Spain and China. Rising property prices helped to prop up the world economy after the stockmarket bubble burst in 2000. What if the housing boom now turns to bust?

According to estimates by The Economist, the total value of residential property in developed economies rose by more than $30 trillion over the past five years, to over $70 trillion, an increase equivalent to 100% of those countries' combined GDPs. Not only does this dwarf any previous house-price boom, it is larger than the global stockmarket bubble in the late 1990s (an increase over five years of 80% of GDP) or America's stockmarket bubble in the late 1920s (55% of GDP). In other words, it looks like the biggest bubble in history.

[Mase]

RE: Post #236

Credit card debt should be $800 billion. Not $800 million.

TGIF!

[durasell]

Probably more...

[Mase]

Prove it.......

[Toddsterpatriot]

Uh, we do have to pay it back and pay interest on it.

Uh, no we don't. They have a pile of $20s. That's not debt. If they loan it to us (invest it in America) then of course we have to pay it back. That's not what the goldbug idiot article was talking about.

[Petronski]

. . . the goldbug idiot article . . .

But you repeat yourself . . .

;OP

[durasell]

Just google "credit card debt trillion"

[Toddsterpatriot]

Sorry, long week :^)

[durasell]

Yes, yes, they're "investing in America." That's great. From another perspective, they are buying America. Not so great.

[Petronski]

Did you see up thread the face of Au, the shiny metal god?

[Mase]

Uh, we do have to pay it back

Pay what back? If I buy a DVD player made in Japan at Best Buy, and pay with cash, how is any debt created? The Japanese can use those dollars to buy goods or services from us or invest in our economy. How does either create debt?

Right now America is a debtor nation.

According to a study by Ricardo Hausmann and Federico Sturzenegger, of Harvard's Kennedy School, the current-account deficit is a statistical illusion. They found that the net return on the U.S. financial position in 2004 was a positive $30 billion and not much different than it had been in 1982, despite 22 years of current-account deficits. When factors such as insurance, know-how, and the value of universally recognized brand names like McDonald's, Disney and Coca Cola are counted, the U.S. becomes a net creditor, not a net debtor, nation.

The rate of return on our liabilities is much smaller than the return on our assets. Foreigners willingly accept a lower rate of return by buying our Treasury bills because they desire currency stability, liquidity, and a safe haven against political and economic risk.

On the other side, our investments overseas earn a much higher rate of return. When these higher rates of return are included in the calculation, as shown by the chart above, it becomes clear that the U.S. is a net creditor nation

[Toddsterpatriot]

And since using a credit card is so easy, Americans are swiping plastic at a fast pace. Total U.S. consumer debt reached $2.35 trillion in July -- an average of almost $8,000 for every adult and child in the country. That doesn't include mortgages -- it's just car loans, boat loans, snowmachine loans, credit cards and such. The credit card portion alone is in the $800 billion neighborhood, or about $2,700 per American.

It's time to pay the bill

[Toddsterpatriot]

See, we didn't have to do anything to "make up" that deficit. The holders of dollars managed to invest it all on their own.

[ovrtaxt]

[Toddsterpatriot]

Awww, he's cute. Or should I saw Au, he's cute?

How can you tell the difference between a secular bull and an ecclesiastical bull?

[sphinx]

You can't fool me. That a density/pressure map of housing prices. The east coast/left coast spikes are the tipoff.

[Mase]

Just google "credit card debt trillion"

I found this when I googled "credit card debt $800 billion":

According to CardWeb.com, which compiles data about the credit industry, Americans now hold 1,537.8 million credit cards and owed an estimated $ 800 billion in credit card debt

What happens if I google "American households own $4.3 trillion in time deposits and savings accounts"?

[Toddsterpatriot]

What happens if I google "American households own $4.3 trillion in time deposits and savings accounts"?

I think this comes up:

Durasell was wrong!

[GodGunsGuts]

Speak for yourself, Toddler. You and your like-minded fiat fanatics at the FED are one of the reasons gold is going to the moon.

[durasell]

I maybe wrong. They don't call economics The Dismal Science for nothing.

That said, I would strongly encourage you to follow your best instincts when it comes to the economy and invest accordingly.

[Toddsterpatriot]

Speak for yourself, Toddler.

Huh?

You and your like-minded fiat fanatics at the FED

I'm not a fiat fanatic. A very small portion of my portfolio is in cash. And none of my cash is margined.