by Calculated Risk on 10/08/2005 09:04:00 PM

The Observer quotes economist Roger Bootle on housing:

'The signs that it's become a bubble in the States are blatant. It has entered the culture to an extent that mirrors, and even exceeds, the equity bubble.'

Some excerpts:

As [Bootle] says in the book ["Money for Nothing"]: 'We are entering a world in which every sort of knowledge - whether it is an idea, a piece of music, a chemical compound, a design for a dress, the plans for a building, a photographic image, a great novel, or the assembled wisdom of the ages - not only cannot be lost, but is instantaneously accessible by everyone in the world, whenever they want, always.'

Before we can reap the full benefits, though, we have to shrug off the damaging legacy of the bubble. The painful lesson he encourages the reader to learn is that it's an illusion to think we can have 'money for nothing' simply by buying and selling shares - or houses - from each other. Day-trading in equities, or dashing up the property ladder, has winners and losers - it doesn't make society, or the world, richer 'any more than taking in each other's washing'.

Genuine increases in wealth come from fresh knowledge, gains in productivity, and an expansion in the size of the market - all the things Bootle believes the next few decades will bring in spades. Meanwhile, the consequences of the dotcom years are still biting. Britain's share of the post-bubble hangover is the housing market boom, which has begun to deflate, taking consumer spending with it, and plunging GDP growth to its slowest pace for 12 years.

'For some time I have been forecasting that there would be some consumer slowdown here. I hadn't expected it to happen quite when it did, so suddenly. But I am concerned that it could go quite a bit further. If consumers should start to want to save rather more - and classically this is what they do when the housing market slows - then in that case, this economy could come perilously close to recession.'
...
He is profoundly worried about the unprecedented housing market boom on the other side of the Atlantic, pumped up, as in Britain, by the ultra-low interest rates of the post-bubble years. 'The signs that it's become a bubble in the States are blatant. It has entered the culture to an extent that mirrors, and even exceeds, the equity bubble.'