# My Brief History of How We Got Here ( i.e. current house prices)



## Duplex (23 Nov 2005)

I think that the present over valuation of Irish property has much more to do with the availability of bargain basement credit, to all and sundry, than with any fundamental demographic demand. Being a keen student of history I think it’s worth looking how we got here. 

Alan Greenspan chairman of the American Federal Reserve is often cited as the man who championed the loosening of the purse strings even prior to the Dot Com bust in 2000. Some commentators suggest this relaxation was a consequence of the break up of the Soviet Empire in 1990 which allowed investment to flow into what was once called the Second World, free from any geopolitical cold war security concerns; creating a ‘Global Economy’ 

By the mid 1990’s the US was the sole superpower and was emerging from a recession which started at the beginning of the decade. It was reasonable for Greenspan (knowing that the US administration were undertaking successful trade and security talks with China and the old Soviet block) to formulate Federal Reserve Policy in response by lowering the cost of borrowing to encourage the economic recovery, and while government spending and trade deficits had grown in this period, acquiescent Arab Oil States (after the success of Gulf War 1) and the emerging benefits of low and falling production costs in Asia cemented the view that the old foe inflation was off the radar screen for the foreseeable future.

So in the mid nineties things looked rosy for The United States they had won the Gulf and Cold Wars they were the dominant world power and their economy was out of recession with a new industry ‘The Internet’ blazing a ‘frothy’ trail towards the dawn of a new millennium, sure deflation in Japan had some worried and even Greenspan in 1996 alluded to “irrational exuberance” in the highly valued Dot Com market. But on the 1 January 2000 when even the dreaded Y2K bug proved to be mere doom mongering, things looked set fair.

But things started to unravel, the Dot Com bubble predictably burst in the spring sending stock markets across the globe into reverse, the Fed responded by cutting rates to bolster the markets and consumer spending, meanwhile (back at the ranch) G W Bush was busily cutting taxes on the rich as part of his plan to boost investment in the US (during this period Bush also increased Government budgets by a magnitude that even Democrats would balk at) a growing trend of outsourcing to Asia was eating away at Americas industrial base as the big corporations became comfortable with investing in China etc. All this time the governments spending deficit and the nation’s trade deficit climbed. 

Then literally out of the blue on the morning of Tuesday the eleventh of September 2001 came, an attack on the US by mainly Saudi Islamic extremists which killed 3,000 people. These attacks sent the stock markets (which were showing nascent signs of recovery) into reverse, the Fed responded to the attacks by introducing what they styled “emergency rate cuts”. In response to the 9/11 attacks the US and her allies invaded first Afghanistan and then Iraq. 

Against this chaotic and confusing background the scene was set for the largest run up in American property prices in history. Lead by skeptical public perception of equities following the Dot Com bust and fuelled by cheap money and ‘casual’ lending standards house prices soared.  Savings rates have plummeted in the US and in other bubble economies, deficits have soared, governments and bankers are desperate to stave off (or more likely), to be seen to stave off deflation, and a Japanese style deflationary recession. 
The Fed seem to be close to the end of their rate tightening episode which comes as no surprise to the money markets which continue to accept low yields on ten year treasury bills. The ‘Greenspan Conundrum’ is still with us, i.e. the narrowing yield between short term government debt and long term debt.  A healthy yield curve will see a higher risk premium associated with longer term debt, but trillions of dollars are continuing to bet that the Fed will have to cut rates again in response to a recession, leading to an inversion in the yield curve.  (The yield curve inverted in 1989 and 2000)  

What ever the outcome of events in the US we can be sure of one absolute truth; Ireland will be profoundly influenced by the fate of the American economy.


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## hmmm (23 Nov 2005)

It sounds like you are describing Bernanke's Global Savings glut.


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## Guest127 (3 Dec 2005)

and I thought a duplex was a one up one down.


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## levelpar (3 Dec 2005)

Hi Duplex, Sorry, I fell asleep halfway through your Brief history lesson. I thought that current house prices  were caused by demand out-stripping supply


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## Marie (4 Dec 2005)

frando said:
			
		

> Hi Duplex, Sorry, I fell asleep halfway through your Brief history lesson. I thought that current house prices were caused by demand out-stripping supply


 
Frando I wondered would you apply the same argument to designer clothes and accessories and to merchandise like iPod?


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## Duplex (4 Dec 2005)

I didn’t add the brackets with “ie current house prices”, must have been the moderators.

Maybe they can explain that particular edit?. 



Frando sorry for boring you, you might find this more interesting.  



http://www.atkearney.com/shared_res/pdf/GSLI_Figures.pdf


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## DrMoriarty (4 Dec 2005)

Duplex said:
			
		

> Maybe they can explain that particular edit?


I'd imagine it was done for the purposes of clarity..?


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## RainyDay (4 Dec 2005)

Duplex said:
			
		

> I didn’t add the brackets with “ie current house prices”, must have been the moderators.
> 
> Maybe they can explain that particular edit?.


So that the thread title actually reflects the content. This allows discerning readers to decide whether they want to click the link or not.


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## levelpar (5 Dec 2005)

Thanks Duplex, Checked out the site you mentioned. I just want to thank you for the headache.


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## Duplex (5 Dec 2005)

Thanks for the explanation Rainy.




> Thanks Duplex, Checked out the site you mentioned. I just want to thank you for the headache.


 
No worries


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## etel (5 Dec 2005)

I have long thought that easy credit , the most recent being the 100% and over mortgages , (and still getting easier ) has most to do with house price rises; that and the fact that the prime house buying demographic have never seen a recession and seem to think that bubbles expand for ever and that they must be in the market by 30 or they have failed in some way .

ah well. They are in for a land . Its like watching lemmings .


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