Monday, 5 December 2011

"It is hard... to identify asset price bubbles"

A quote from Mervyn King, Governor of the Bank of England, in 2004 agreeing with Alan Greenspan the Chairman of the Federal Reserve. Perhaps he should have looked at the plot below which I put together with data from the Bank of England's website.

The peak in the rate of change of mortgage lending occurred around the same time as the words were being uttered. As far as the central bankers were concerned, since inflation was low and stable, all was fine and dandy. This conclusion was made despite the huge amounts of credit money pouring into real estate. Yet as the financial crisis has developed there has still been no genuine acknowledgement of this failure to spot the critical factor - the change in private debt.

Note the discontinuity in the mortgage lending plot. This occurs where there is a change in the source of the numbers from BoE derived to mortgage lender derived. It is almost as if the BoE want to disown the data.

1 comment:

  1. It's amazing how these so called people get away with this nonsense. Even if you know nothing about banking, all you need to do is look at house prices, which are easy to understand and well documented.

    If prices are rising faster than wages, this is a warning sign, if they've doubled in ten years this is RED ALLERT FLASHING SIGNAL WITH SIRENS.