Chart of the Day: Housing Bubbles

Fight disinformation: Sign up for the free Mother Jones Daily newsletter and follow the news that matters.

Ben Bernanke is famous as the originator of the theory of the “global savings glut” as a partial explanation for the previous decade’s1 housing bubble, and in his speech yesterday at the American Economic Association he put up this chart to demonstrate his point. Basically, it shows that big current account deficits are moderately correlated with housing bubbles in various countries around the world. Spain, Britain, and the United States ran big deficits, which means that lots of overseas money was flowing in and helping to finance a boom. Germany and Switzerland ran big surpluses, which means that money was flowing out and housing prices stayed fairly flat.

That’s only part of the story, of course, but it’s always struck me as an important part. If huge amounts of cheap money are flowing into an economy, then all the rules in the world aren’t going to stop it from inflating something, and housing is always a good candidate. At the same time, it’s also incomplete. Ireland ran a mostly balanced current account and suffered one of the biggest housing bubbles anyway. What’s more, in a sense it doesn’t matter as much as it once did since this kind of contagion spreads so fast now. Germany may have run current account surpluses, but its banks bought up plenty of American mortgage securities and insured them using credit default swaps from American insurance companies, so when the bubble burst they were hurt every bit as badly as we were.

And of course, although rules can’t stop hot money from inflating assets completely, they can moderate its effect. As Paul Krugman says: “Bernanke should have been more forthright about the Fed’s undoubted failures: Greenspan’s rejection of advice about the risks of subprime lending, and the failure of top officials, BB included, to recognize the housing bubble in real time.” America needs to get its long-term trade deficit under control, but we also need to get a whole lot more serious about regulating leverage throughout the entire economic system in simple and transparent ways. These aren’t competing goals, they’re complementary ones.

1Isn’t it nice to finally be able to refer to this cleanly as the “previous decade”?

AN IMPORTANT UPDATE

We’re falling behind our online fundraising goals and we can’t sustain coming up short on donations month after month. Perhaps you’ve heard? It is impossibly hard in the news business right now, with layoffs intensifying and fancy new startups and funding going kaput.

The crisis facing journalism and democracy isn’t going away anytime soon. And neither is Mother Jones, our readers, or our unique way of doing in-depth reporting that exists to bring about change.

Which is exactly why, despite the challenges we face, we just took a big gulp and joined forces with the Center for Investigative Reporting, a team of ace journalists who create the amazing podcast and public radio show Reveal.

If you can part with even just a few bucks, please help us pick up the pace of donations. We simply can’t afford to keep falling behind on our fundraising targets month after month.

Editor-in-Chief Clara Jeffery said it well to our team recently, and that team 100 percent includes readers like you who make it all possible: “This is a year to prove that we can pull off this merger, grow our audiences and impact, attract more funding and keep growing. More broadly, it’s a year when the very future of both journalism and democracy is on the line. We have to go for every important story, every reader/listener/viewer, and leave it all on the field. I’m very proud of all the hard work that’s gotten us to this moment, and confident that we can meet it.”

Let’s do this. If you can right now, please support Mother Jones and investigative journalism with an urgently needed donation today.

payment methods

AN IMPORTANT UPDATE

We’re falling behind our online fundraising goals and we can’t sustain coming up short on donations month after month. Perhaps you’ve heard? It is impossibly hard in the news business right now, with layoffs intensifying and fancy new startups and funding going kaput.

The crisis facing journalism and democracy isn’t going away anytime soon. And neither is Mother Jones, our readers, or our unique way of doing in-depth reporting that exists to bring about change.

Which is exactly why, despite the challenges we face, we just took a big gulp and joined forces with the Center for Investigative Reporting, a team of ace journalists who create the amazing podcast and public radio show Reveal.

If you can part with even just a few bucks, please help us pick up the pace of donations. We simply can’t afford to keep falling behind on our fundraising targets month after month.

Editor-in-Chief Clara Jeffery said it well to our team recently, and that team 100 percent includes readers like you who make it all possible: “This is a year to prove that we can pull off this merger, grow our audiences and impact, attract more funding and keep growing. More broadly, it’s a year when the very future of both journalism and democracy is on the line. We have to go for every important story, every reader/listener/viewer, and leave it all on the field. I’m very proud of all the hard work that’s gotten us to this moment, and confident that we can meet it.”

Let’s do this. If you can right now, please support Mother Jones and investigative journalism with an urgently needed donation today.

payment methods

We Recommend

Latest

Sign up for our free newsletter

Subscribe to the Mother Jones Daily to have our top stories delivered directly to your inbox.

Get our award-winning magazine

Save big on a full year of investigations, ideas, and insights.

Subscribe

Support our journalism

Help Mother Jones' reporters dig deep with a tax-deductible donation.

Donate