As I was writing this post, the Greeks are deciding on their future in the Eurozone whether or not they will stay with the Euro. There is a good post that summaries the key aspects on this decision and its potential effects. I really recommend reading it.
Lately I have been reading Richard Thaler’s Misbehaving. It is essentially Thaler’s academic autobiography that combines his personal journey as a researcher in the early days of behavioural economics with insights gained from that field.
A couple of weeks ago, our treasurer Joe Hockey stirred the pot by advising Australians wanting to buy their first home to “get a good job that pays good money”. Technically, he is right. It is increasingly harder today for average Australian households to buy their residential home than 30 years ago. So, What are the impacts? What may potentially be the driving forces in pushing the prices today? And finally, what are the implications?
Interesting read on the most likely cause of the increase in credit supply during the housing boom prior to the GFC.
Credit Supply and the Housing Boom
Alejandro Justiniano, Giorgio Primiceri, and Andrea Tambalotti
Liberty Street Economics, APRIL 20, 2015
In a nutshell:
… When savers and financial institutions are less restricted in their lending, the supply of credit increases and interest rates fall. Since access to credit requires collateral, the increased availability of funds at lower interest rates makes the existing collateral—houses—scarcer and hence more valuable. As a result of higher real estate values, borrowers can increase their debt, even though their debt-to-collateral ratio remains unchanged. These responses of debt, house prices, aggregate leverage, and mortgage rates match well the empirical facts illustrated in the previous four charts. We conclude from this experiment that a shift in credit supply, associated with looser lending constraints, was the fundamental driver of the credit and housing boom that preceded the Great Recession.
Source: FOMC Note:emphasis is mine
Information received since the Federal Open Market Committee met in March suggests that economic growth slowed during the winter months, in part reflecting transitory factors. The pace of job gains moderated, and the unemployment rate remained steady. A range of labor market indicators suggests that underutilization of labor resources was little changed. Growth in household spending declined; households’ real incomes rose strongly, partly reflecting earlier declines in energy prices, and consumer sentiment remains high. Business fixed investment softened, the recovery in the housing sector remained slow, and exports declined. Inflation continued to run below the Committee’s longer-run objective, partly reflecting earlier declines in energy prices and decreasing prices of non-energy imports. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations have remained stable.
Would you believe that your expectation can enhance the performance of a mouse in a maze problem? I wouldn’t be writing this post if the answer isn’t, indeed, yes. That is how Invisibilia started its show on how society expectation on a blind person, is hindering his ability to “see” the world.
Need a weekend read on the study of economics? Charlie Munger offered an insightful critique on the way we study economics, what we do well and what we can improve on. One major recurring theme is summed up by this: To the man with only a hammer, every problem looks pretty much like a nail. His main criticism is that we are too narrowly focused that the discipline is losing its relevance.
The future is hard to predict, but we can have a decent guess of what it will look like by looking at people who will influence the future outcome. If you want to see what the world economy will most likely look like, you would need to look at the behaviour of those who will become major spenders, events that shape their thinking and their priorities. To that end, Goldman Sach has made a beautiful visualisation.