Yesterday I showed a picture of home mortgage debt compared to total credit market debt:
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| Graph #1: Home Mortgage Debt as a Percent of Total Credit Market Debt |
But hey, you want to see an increase in debt? I'll show you an increase in debt:
+and+Financial+Debt+(red).png) |
| Graph #2: Home Mortgage Debt as a Percent of Total Credit Market Debt (blue) and Domestic Financial Debt as a Percent of Total Credit Market Debt (red) |
The blue line shows the same data on both graphs. The red line -- financial debt -- shows increase.
5 comments:
What you've done here is illustrate one of Greg's points from his comment to the previous post.
The fact that finance sector debt grew faster than mortgage debt is irrelevant to the truth that there was a housing bubble.
Bubbles relate to irrational price explosion and collapse, and nothing else. That is what happened with house prices in the first decade of this century.
Why are you denying what the relevant data so plainly shows?
Its probably the most accurate to call it a real estate bubble, of which housing was a big part of.
Mike Sankowski over at Monetary Realism does some great analysis and one of his points for a long time has been that monetary policy works it magic via real estate lending. The Great Moderation was the pre crisis period hailed by Greenspan and co that supposedly was proof that monetary policy, all by itself, could keep our inflation low and employment/productivity high without large market events. This was mostly accomplished via getting everyone into homes and developing every other piece of land w/ commercial properties.
I agree with you that our problem is the cost of debt/credit, the amount of private debt to incomes and our policies which rely on private debt growth for economic growth, but real estate loans, and the derivatives created from them I would argue, compose a signifiant portion of that credit market activity.
So what do you call a bubble.... if anything?
On bubbles...
Jazz: "If this historical standard means anything, housing prices are currently over-valued..."
Greg: "Isn't a bubble more about the prices of the assets in question and not the percentage the credit towards that asset occupies in the credit markets?"
Jazz def: "Bubbles are typically associated with dramatic asset price increases ..."
Jazz: "Bubbles relate to irrational price explosion and collapse, and nothing else."
Evidently, we think the word "bubble" refers to prices and nothing else.
But how could there be a price bubble in housing without an extraordinary increase in mortgage debt?
Obviously there was an extraordinary increase in mortgage debt. But apparently (as my graph shows) there was an extraordinary increase in ALL debt.
I'm suggesting that the problem here is not housing. Isn't it obvious?
I'm suggesting that the problem here is not housing. Isn't it obvious?
The Title of your previous post was "HOUSING BUBBLE?" suggesting that you doubted it's existence.
Forgive me if I misread you.
But the housing bubble was a huge problem, and the proximate cause of the financial collapse, due to the colateralization and tranching of the underlying mortgages - yeah, I know - debt.
But how could there be a price bubble in housing without an extraordinary increase in mortgage debt?
Actually, I'd say there was.
http://research.stlouisfed.org/fred2/graph/?g=rls
YoY change in $$ amounts, no denominators.
Dollar growth per year was dead flat around $200 billion/r from '85 to '95, started increasing around '97, and went exponential after Phil Graham changed all the rules in '99.
Over a trillion $ in new mortgage debt added in each of 2005-6.
Big bubble in both home prices and mortgages.
JzB
Good graph, Jazz!
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