
Bernanke: There's No Housing Bubble to Go Bust (2005) - jwallaceparker
http://www.washingtonpost.com/wp-dyn/content/article/2005/10/26/AR2005102602255.html
======
nkoren
Bernanke was delusional, but others saw the bubble for what it was. Four
months months earlier, in The Economist: "The worldwide rise in house prices
is the biggest bubble in history. Prepare for the economic pain when it pops.
[...] 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."[1]

There's been a narrative developing lately that none of the mainstream
economists saw the crash coming. This is not true; plenty of them did. But
their message did not appeal to incumbent politicians, and so it was ignored.

1: <http://www.economist.com/node/4079027?story_id=4079027>

~~~
mistermann
Tons of bloggers were all over it as well, just one example:

<http://housingpanic.blogspot.com>

~~~
don_draper
Also, <http://thehousingbubbleblog.com>

------
hkmurakami
(I know that what I'm writing here is ludicrous but...)

I wonder if a fed chairman who does foresee financial bubbles collapsing would
actually be able to say so publicly. The fed is supposed to be immune from
lobbying and political forces _in theory_ , but I wonder what the chances are
for someone to bow to the social pressures and pretend like everything is just
toally fine.

In fact, how long has it been since we've had a high ranking federal reserve
official actually forecast economic doom? I'm not saying that such officers
will _never_ say something negative when the public signals are all green
lights, but I can't help but think that there is _some_ skew towards optimism
in public comments.

~~~
wintersFright
"When it becomes serious, you have to lie" - Jean-Claude Juncker, Luxembourg
PM and Head Euro-Zone Finance Minister

[http://blogs.telegraph.co.uk/news/davidhughes/100087136/he-m...](http://blogs.telegraph.co.uk/news/davidhughes/100087136/he-
may-be-a-prime-minister-but-he-admits-he-lies-his-way-out-of-trouble/)

~~~
btilly
Anyone who has been anywhere close to finance knows that this is true.

The economy is largely about psychology and perception. If someone in a
position of authority stands up and says that the sky is falling, they can
cause the sky to fall even if it wasn't about to.

It is the same problem as the classic run on the banks. Even a fundamentally
healthy bank is going to be in trouble if everyone asks for their money back
at once.

~~~
wintersFright
yep - it also just means that right up until a bank holiday and your account
is frozen, the official line will always be everything is fine, the bank is
well capitalised and there is nothing to worry about...unless you are well
connected in which case you will get a whisper to move your money out).

So if you aren't one of the well connected people, it pays to be a little
paranoid and be first in line to withdraw your money while you can. It's kind
of funny, the rational action for any individual is not to keep most of their
money in a bank where it is at risk of going away with zero notice. The
confidence of the banking system relies on everyone being irrational!

------
don_draper
Search Youtube for 'Peter Schiff was right'. It's entertaining to watch the
people who laughed at him in 2006.

~~~
Steko
It's even more entertaining to laugh at him over his calls for hyperinflation
from 2009:

[http://krugman.blogs.nytimes.com/2011/12/15/inflation-
predic...](http://krugman.blogs.nytimes.com/2011/12/15/inflation-predictions/)

 _PAYNE: So, where are you then, Peter, with respect to inflation? Do you
think this is going to be the big story of 2010?

SCHIFF: You know, look, I know inflation is going to get worse in 2010.
Whether it’s going to run out of control or it’s going to take until 2011 or
2012, but I know we’re going to have a major currency crisis coming soon. It’s
going to dwarf the financial crisis and it’s going to send consumer prices
absolutely ballistic, as well as interest rates and unemployment.

PAYNE: And what does that mean? For people watching this show, what does that
mean for the average American?

SCHIFF: It means their life is going to get a lot more difficult. It means
things that they need to buy, things like food and energy, are going to be
much more expensive. Ultimately, interest rates are going to rise and their
entire standard of living is going to plunge.

And I’m hoping the government doesn’t respond to this inflation with price
controls because that’s going to make it even worse. Now, you’re going to be
waiting in long lines to get basic food items or to get energy because there’s
going to be shortages. People might be going to the black market.

PAYNE: You’re talking you’re talking Zimbabwe, Weimar, Germany — I mean,
you’re really talking about something like that actually happening in this
country.

SCHIFF: It will happen if we don’t change policies. There is still time to
change.

PAYNE: Right.

SCHIFF: I mean, I’m running for the United States Senate, so I can try to
change that myself. But if we don’t reverse course, if we continue to
stimulate, then we will end up with hyperinflation and it will be like
Zimbabwe._

~~~
temphn
Go long on the dollar, we'll go long on Bitcoin and gold. Let's see where you
are in a few years when QE-infinity keeps on going.

~~~
Steko
How about quit moving the goalposts and examine the years you've been wrong
about inflation already.

~~~
jwallaceparker
I don't think the exact timing matters much when evaluating this sort of
thing.

Peter Schiff's focus is long term trends. He's constantly saying it's
impossible to forecast exactly when the bottom will drop out. Just that it
will if we continue down QE infinity.

That seems sensible. How can endless money printing end in anything but
inflation?

~~~
dragonwriter
> He's constantly saying it's impossible to forecast exactly when the bottom
> will drop out. Just that it will if we continue down QE infinity.

Sure, if we continue QE when the conditions on which QE is premised go away,
that would be expected to produce potentially substantial inflation. But the
reason QE is continuing is the existence of precisely the conditions (with
regard to extensions of credit and resulting demand) that indicate that QE
will not cause inflation. Were those situations to end, QE would be
terminated, since the entire reason that QE is being done would no longer
exist.

> That seems sensible.

To the extent that it is sensible, it is irrelevant to the real world, since
the policy isn't "QE forever ignoring actual conditions relevant to
inflation". To the extent that it is a criticism of actual real-world policy,
it is not sensible.

> How can endless money printing end in anything but inflation?

Quite easily.

First, money printing can fail to lead to increases in the effective money
supply if banks _destroy_ money but not extending credit as existing credit is
paid off in a quantity which offsets the increase in the money supply that
would be expected due to printing. (This is basically the QE situation.)

Second, even beyond that, expanding the money supply that is actually chasing
goods and services isn't expected to lead to inflation if the _rate_ at which
the supply expands is less than or equal to the rate at which new goods and
services for it to chase are created. So, _depending on the rate of money
creation_ , increases to the money supply can continue _forever_ without any
expectation of inflation. (This is why, if you don't want deflation and don't
have declining production, you need _some_ money supply growth under normal
conditions.)

------
anon987
You know where I go for my armchair macro-economic analysis? Hacker News.

Flagged.

~~~
coolsunglasses
Good way to lose the ability to flag things.

~~~
Steko
Why is that? 2005 article submitted with a clear political motive from a
submitter who has a history of similar[1]. I rarely use the flag button and
often complain about the flagging rings here but this one didn't seem like a
bad one to flag.

[1] off the first page (2nd page mostly dead links, idk what that's about):

What’s Behind the Crash in the Gold Market? (time.com)

No Housing Bubble Trouble (2005) (cato.org)

Gold prices dive 5% to $1,487 an ounce (usatoday.com)

RonPaulCurriculum.com (ronpaulcurriculum.com)

Texas wants its gold stored in the state, not at Federal Reserve in New York
(bostonglobe.com)

Petition: Pass a global wealth cap of $1 billion per US citizen (change.org)

Elizabeth Warren's Unwarranted Wage (mises.org)

~~~
jwallaceparker
So you flagged this yet you made other comments on this thread, indicating
that you're interested in the topic.

Could you please explain that?

------
teeja
Either he's a complete fool, or he hadn't heard about the massive RE fraud the
FBI had begun reporting taking place all over the country, or he knew damn
well what and why.

Take your choice. Small wonder that prices were rising like crazy (how can
that -not-be a bubble? given the history of RE prices over the previous
century) when anyone with a pulse could get a loan. And oh how they got away
with it.

~~~
tdees40
There were people who saw it, sure, but lots more people who didn't. So saying
he was a complete fool is just ridiculous.

------
ignostic
Nice find, and not just for the obviously wrong side of it. I've heard it
argued that the housing bubble was somehow "unforeseeable" and that "no one
saw it coming."

> _"Many economists argue that house prices have risen too far too fast in
> many markets, forming a bubble that could rapidly collapse and trigger an
> economic downturn"_

~~~
grbalaffa
> I've heard it argued that the housing bubble was somehow "unforeseeable" and
> that "no one saw it coming."

I've heard this from various corners as well, and it utterly amazes me that
there are people who would actually try to claim that with a straight face.
There certainly was plenty of warning of the housing bubble both in the
mainstream press and elsewhere. Here are just a couple of examples:

The Economist called it "the biggest bubble in history" in 2005:

<http://www.economist.com/node/4079027>

And here is a blog which goes back to 2004 dedicated to discussing the housing
bubble:

    
    
      http://thehousingbubble.blogspot.com  (original site)
      http://thehousingbubbleblog.com       (post-move site)
    

Also, Wikipedia does a pretty good job of collecting the history of various
warnings and indications here:

[http://en.wikipedia.org/wiki/United_States_housing_bubble#Id...](http://en.wikipedia.org/wiki/United_States_housing_bubble#Identification)

In short, it's quite obvious that plenty of people "saw it coming", and anyone
trying to claim otherwise is just desperately playing the CYA game.

~~~
pessimizer
Thanks for the Wikipedia link - never knew a list that detailed of the public
predictors existed. Will send it as a reference instead of trying to remember
names that the person I'm arguing with doesn't even recognize. Love that Dean
Baker ( <http://www.cepr.net/index.php/beat-the-press/> )is in the power
position.

------
rafski
"Never believe anything until it has been officially denied."

Otto von Bismarck

(also attributed to others as is every good quote)

