6 ms·

On a related topic, can anyone point me to articles / research related to how bubbles continue to inflate during recessionary periods? From my uninformed/simpli

by kitcar 11y ago

On a related topic, can anyone point me to articles / research related to how bubbles continue to inflate during recessionary periods? From my uninformed/simplistic viewpoint it seems like the two are opposing concepts (i.e. popped bubbles lead to recession), other then the fact that governments use low interest rates to try and dig themselves out of recessions, and cheap money tend to fuel bubbles. The reason for my interest is this seems to be what is happening in Canada right now ( see http://www.cbc.ca/news/business/canadian-house-prices-35-overvalued-economist-magazine-says-1.3040698 http://www.cbc.ca/news/business/canadian-house-prices-35-ove... + http://www.leaderpost.com/business/Johnstone+Canada+recession+what/11223333/story.html http://www.leaderpost.com/business/Johnstone+Canada+recessio... )

tpg 11y ago
During a general recession, there are fewer attractive investment opportunities. However, investment funds still exist and need to be put somewhere. It's easy for a bubble to form when too much money goes into one particular sector, but the bubble then only makes it more attractive for investment. Housing is a traditionally safe, stable investment, and (at least in the US) large funds have been buying up homes at a huge scale for investment purposes. I'd be glad to speculate further, but that's all it is. I can't point you to any articles on the subject.
- marincounty 11y ago
  "Housing is a traditionally safe, stable investment, and (at least in the US) large funds have been buying up homes at a huge scale for investment purposes." Personally, I look at a house-- like I do food. It's a necessity. I don't feel large entities should be able to buy up large units of housing, and dole them out when the market suits their greed. Even for personal realestate speculation, I don't think anyone should be able to own more than 5 homes.(I just picked that number out of the air). In other words, I'm not a huge fan of realestate speculation, and whenever I hear about corporations buying up huge swaths of homes, I think about Gordon Gekko, 'Greed is good!', and my blood pressure rises. While I'm at it--what's up with letting foreigners buy our land, before they become citizens? As it stands now, it looks like pretty much anyone, from every country, can pick up the phone, and buy American realestate? We have a hell of a time buying property in other countries? What am I missing? And then letting the house sit empty? I know it's legal--it just doesn't seem right? I don't want to argue with anyone, I'm a nobody, and no expert. I'm not financially sophisticated. I just know if I had a lot of money, I wouldn't buy up all the orange juice concentrate, and keep it frozen tell the price skyrocketed; then and only then, sell it to the peons, and make a killing. I just could morally do it. Maybe that's why I'm broke? Furthermore, I couldn't imagine being a landlord these days. "Hay Joy, I see your daughter is going 1st grade next year? That's great! Hope she's making friends? I know how tough the move, and divorce has been on her. By the way, I need to increase your rent next month by $500. Have a good day! I'm off to the gym! See ya!" Went way of topic--sorry. Just tired of feeling so close to being homeless; I'm dusting off my camping equipment. I guess living in the Bay Area is skewing my view of the morality of realestate speculation? I now feel sick? I need to take a walk. Happy Sunday people!
  - andy_boot 11y ago
    >>>While I'm at it--what's up with letting foreigners buy our land, before they become citizens? As it stands now, it looks like pretty much anyone, from every country, can pick up the phone, and buy American realestate? This happens in London a lot too. Entire blocks of flats are marketed at and sold directly to Asia. Interestingly I read that in Singapore they do not allow you to buy real estate until you have lived there several year.
    - dataker 11y ago
      You can't seriously compare the size of Singapore and the U.S. Foreigners buy London/NYC/SF because the price was inflated in the first place( its really hard to build stuff in these regulated cities)
    - douche 11y ago
      Question: Let's say the USA and China get in a spat and things escalate to a trade war or a shooting war (unlikely, outside of Tom Clancy (RIP) novels). What happens to the huge amounts of property owned by Chinese nationals? Is there some precedent for seizing it? I would guess that the historical examples would be WW2. Which is problematic, because we put people of Japanese descent in concentration camps, as opposed to nothing for German/Italian immigrants...
      - saryant 11y ago
        Roosevelt seized Japanese assets and most Allies did the same. http://www.history.com/this-day-in-history/united-states-freezes-japanese-assets http://www.history.com/this-day-in-history/united-states-fre...
stygiansonic 11y ago
The definition of a recession is tied to changes across the entire economy, which GDP is usually taken to represent. Housing constitutes only a part of GDP, so it's possible for bubbles to form in housing prices (or indeed any asset category) even though the entire economy might be in recession. Furthermore, the definition of a bubble is pretty tenuous. Often, a bubble is only known in hindsight. Furthermore, during a recession, certain asset prices (safe haven assets like perhaps gold, government bonds, the strength of the USD) may increase substantially as people seek safety and cash flows into these assets. Does this constitute a "bubble" in these assets?
mangeletti 11y ago
https://en.m.wikipedia.org/wiki/Stagflation https://en.m.wikipedia.org/wiki/Stagflation
ogx 11y ago
Average house prices are going up due to Vancouver and Toronto, but house market values are set based upon a small number of sales. In other words, it's not like 30 million houses were sold this year to establish the upward trend. It's really a tiny fraction of them that are on the market and when it comes to VC/TO those sale prices are largely dictated by foreign investment. In VC there are entire neighbourhoods where 30% of condo units are empty all year round. The point is that the average market values going up does not represent a bubble forming that will someday cause bloodshed due to the Canadian economy going into a recession. The house prices in those areas are more detached or rather relative (i.e. when a foreigner invests in a property in Canada it's to protect that wealth from losing value relative to other places and even when Canada is in a recession the debt burden of the country is much less than other places). Poloz is not lowing the rate to help out the Canadian debtors make payments on those over inflated houses, after all unemployment is 6.8 percent and even the banks decided people didn't need it so they only passed on a fraction of the lowering [1]. No, he's intentionally lowing the currency value in an attempt to kickstart a new manufacturing investment wave that would normally come back to Canada given the oil prices collapse [2]. 1. http://t.thestar.com/#/article/business/2015/07/16/major-banks-dont-pass-on-interest-rate-cut.html http://t.thestar.com/#/article/business/2015/07/16/major-ban... 2. https://en.m.wikipedia.org/wiki/Dutch_disease https://en.m.wikipedia.org/wiki/Dutch_disease
tsotha 11y ago
In fractional reserve systems you create money when you borrow from the bank. So governments will often deliberately (if not openly) stimulate real estate prices in an effort to inflate the money supply and stimulate the economy. A great many people believe the 2008 US real estate crash can ultimately be traced to the government's inflationary reaction to the bursting of the dotcom bubble in 2000.
- skylan_q 11y ago
  In fractional reserve systems you create money when you borrow from the bank This isn't true. Banks can only loan out money deposited with them.
  - baddox 11y ago
    I suspect tsotha is thinking of deposit multiplication, which is often considered to be "money creation" because demand deposits are considered part of some definitions of "money supply" (particularly M1 in the United States).
  - deleted 11y ago
    [deleted]
  - RhodesianHunter 11y ago
    It's entirely true, it's even in the name. In a "Fractional Reserve" System banks only have to maintain a fraction of what they lend out in reserve. When you borrow money from a bank you are literally creating new money. But don't believe me, Wikipedia is your friend.
    - philwelch 11y ago
      You're thinking fractional reserve means, for a 1/4 fraction, I put $1000 in my savings account and the bank can lend you $4000. That's not true. In reality, I put $1000 in my bank account. But the bank only needs $250 cash in reserve backing that account, and can lend out the other $750. Of the bank's $1000 in assets, 1/4 must be hard cash and the rest can be debts payable to the bank. The bank charges interest to borrowers, and pays interest to depositors, and makes its profit off the margin.
zhte415 11y ago
In the mid-2000s a phrase kept getting banded around in investment management "The search for yield." As interest rates were so low, as were credit spreads, there was a big demand for anything that gave some kind of yield. That proceeded to drive down credit spreads further. And more and more. Which meant basically free capital for investments which were inherently risky, with credit lenders (banks and non-banks) getting money thrown at them for yield, just some yield. Then they get really clover and making synthetic yield. And then we had the recent financial crisis, caused by these low rates themselves as a result of the dot-com bubble. For reading, Shiller's Irrational Exuberance is always fresh (data-based); and stuff by Michael Lewis is good too (narrative).

by kitcar 11y ago

tpg 11y ago

During a general recession, there are fewer attractive investment opportunities. However, investment funds still exist and need to be put somewhere. It's easy for a bubble to form when too much money goes into one particular sector, but the bubble then only makes it more attractive for investment. Housing is a traditionally safe, stable investment, and (at least in the US) large funds have been buying up homes at a huge scale for investment purposes. I'd be glad to speculate further, but that's all it is. I can't point you to any articles on the subject.

marincounty 11y ago
"Housing is a traditionally safe, stable investment, and (at least in the US) large funds have been buying up homes at a huge scale for investment purposes." Personally, I look at a house-- like I do food. It's a necessity. I don't feel large entities should be able to buy up large units of housing, and dole them out when the market suits their greed. Even for personal realestate speculation, I don't think anyone should be able to own more than 5 homes.(I just picked that number out of the air). In other words, I'm not a huge fan of realestate speculation, and whenever I hear about corporations buying up huge swaths of homes, I think about Gordon Gekko, 'Greed is good!', and my blood pressure rises. While I'm at it--what's up with letting foreigners buy our land, before they become citizens? As it stands now, it looks like pretty much anyone, from every country, can pick up the phone, and buy American realestate? We have a hell of a time buying property in other countries? What am I missing? And then letting the house sit empty? I know it's legal--it just doesn't seem right? I don't want to argue with anyone, I'm a nobody, and no expert. I'm not financially sophisticated. I just know if I had a lot of money, I wouldn't buy up all the orange juice concentrate, and keep it frozen tell the price skyrocketed; then and only then, sell it to the peons, and make a killing. I just could morally do it. Maybe that's why I'm broke? Furthermore, I couldn't imagine being a landlord these days. "Hay Joy, I see your daughter is going 1st grade next year? That's great! Hope she's making friends? I know how tough the move, and divorce has been on her. By the way, I need to increase your rent next month by $500. Have a good day! I'm off to the gym! See ya!" Went way of topic--sorry. Just tired of feeling so close to being homeless; I'm dusting off my camping equipment. I guess living in the Bay Area is skewing my view of the morality of realestate speculation? I now feel sick? I need to take a walk. Happy Sunday people!
- andy_boot 11y ago
  >>>While I'm at it--what's up with letting foreigners buy our land, before they become citizens? As it stands now, it looks like pretty much anyone, from every country, can pick up the phone, and buy American realestate? This happens in London a lot too. Entire blocks of flats are marketed at and sold directly to Asia. Interestingly I read that in Singapore they do not allow you to buy real estate until you have lived there several year.
  - dataker 11y ago
    You can't seriously compare the size of Singapore and the U.S. Foreigners buy London/NYC/SF because the price was inflated in the first place( its really hard to build stuff in these regulated cities)
  - douche 11y ago
    Question: Let's say the USA and China get in a spat and things escalate to a trade war or a shooting war (unlikely, outside of Tom Clancy (RIP) novels). What happens to the huge amounts of property owned by Chinese nationals? Is there some precedent for seizing it? I would guess that the historical examples would be WW2. Which is problematic, because we put people of Japanese descent in concentration camps, as opposed to nothing for German/Italian immigrants...
    - saryant 11y ago
      Roosevelt seized Japanese assets and most Allies did the same. http://www.history.com/this-day-in-history/united-states-freezes-japanese-assets http://www.history.com/this-day-in-history/united-states-fre...

stygiansonic 11y ago

The definition of a recession is tied to changes across the entire economy, which GDP is usually taken to represent. Housing constitutes only a part of GDP, so it's possible for bubbles to form in housing prices (or indeed any asset category) even though the entire economy might be in recession. Furthermore, the definition of a bubble is pretty tenuous. Often, a bubble is only known in hindsight. Furthermore, during a recession, certain asset prices (safe haven assets like perhaps gold, government bonds, the strength of the USD) may increase substantially as people seek safety and cash flows into these assets. Does this constitute a "bubble" in these assets?

mangeletti 11y ago

https://en.m.wikipedia.org/wiki/Stagflation https://en.m.wikipedia.org/wiki/Stagflation

ogx 11y ago

Average house prices are going up due to Vancouver and Toronto, but house market values are set based upon a small number of sales. In other words, it's not like 30 million houses were sold this year to establish the upward trend. It's really a tiny fraction of them that are on the market and when it comes to VC/TO those sale prices are largely dictated by foreign investment. In VC there are entire neighbourhoods where 30% of condo units are empty all year round. The point is that the average market values going up does not represent a bubble forming that will someday cause bloodshed due to the Canadian economy going into a recession. The house prices in those areas are more detached or rather relative (i.e. when a foreigner invests in a property in Canada it's to protect that wealth from losing value relative to other places and even when Canada is in a recession the debt burden of the country is much less than other places). Poloz is not lowing the rate to help out the Canadian debtors make payments on those over inflated houses, after all unemployment is 6.8 percent and even the banks decided people didn't need it so they only passed on a fraction of the lowering [1]. No, he's intentionally lowing the currency value in an attempt to kickstart a new manufacturing investment wave that would normally come back to Canada given the oil prices collapse [2]. 1. http://t.thestar.com/#/article/business/2015/07/16/major-banks-dont-pass-on-interest-rate-cut.html http://t.thestar.com/#/article/business/2015/07/16/major-ban... 2. https://en.m.wikipedia.org/wiki/Dutch_disease https://en.m.wikipedia.org/wiki/Dutch_disease

tsotha 11y ago

In fractional reserve systems you create money when you borrow from the bank. So governments will often deliberately (if not openly) stimulate real estate prices in an effort to inflate the money supply and stimulate the economy. A great many people believe the 2008 US real estate crash can ultimately be traced to the government's inflationary reaction to the bursting of the dotcom bubble in 2000.

skylan_q 11y ago
In fractional reserve systems you create money when you borrow from the bank This isn't true. Banks can only loan out money deposited with them.
- baddox 11y ago
  I suspect tsotha is thinking of deposit multiplication, which is often considered to be "money creation" because demand deposits are considered part of some definitions of "money supply" (particularly M1 in the United States).
- deleted 11y ago
  [deleted]
- RhodesianHunter 11y ago
  It's entirely true, it's even in the name. In a "Fractional Reserve" System banks only have to maintain a fraction of what they lend out in reserve. When you borrow money from a bank you are literally creating new money. But don't believe me, Wikipedia is your friend.
  - philwelch 11y ago
    You're thinking fractional reserve means, for a 1/4 fraction, I put $1000 in my savings account and the bank can lend you $4000. That's not true. In reality, I put $1000 in my bank account. But the bank only needs $250 cash in reserve backing that account, and can lend out the other $750. Of the bank's $1000 in assets, 1/4 must be hard cash and the rest can be debts payable to the bank. The bank charges interest to borrowers, and pays interest to depositors, and makes its profit off the margin.

zhte415 11y ago

In the mid-2000s a phrase kept getting banded around in investment management "The search for yield." As interest rates were so low, as were credit spreads, there was a big demand for anything that gave some kind of yield. That proceeded to drive down credit spreads further. And more and more. Which meant basically free capital for investments which were inherently risky, with credit lenders (banks and non-banks) getting money thrown at them for yield, just some yield. Then they get really clover and making synthetic yield. And then we had the recent financial crisis, caused by these low rates themselves as a result of the dot-com bubble. For reading, Shiller's Irrational Exuberance is always fresh (data-based); and stuff by Michael Lewis is good too (narrative).