Housing Bubble Follow

Wolfgang contemplates (but rejects) the possibilty of an inflationary escape. FT.com: Hold tight, the central banks have no plan In an environment in which central banks target a low rate of inflation, the lion’s share of the adjustment will have to come from falling nominal house prices. That was different in the 1970s, when high inflation took care of the real price adjustment........... ......... Let us assume that the housing downturn is going to last eight years. A 2 per cent annual inflation rate – the target of many central banks today – adds up to 17 per cent inflation for the entire period; and a 4 per cent annual rate adds up to 37 per cent. So if UK house prices have to fall 40 per cent in real terms – which is not exaggerated given the extent of the bubble – an annual inflation rate of about 4 per cent would take care of the problem. Nominal houses prices would then not have to fall. Posted by tick tock @ 08:17 PM 1 Comments