Tour De Economy

An excellent analogy I read in Kindleberger & Aliber’s (2003) book in describing a bubble read as follows “After several years of bubble-like behaviour [it] resembles that of a young person on a bicycle; the rider needs to maintain the forward momentum or the bike becomes unstable.” Fitting don’t you think?

Bubbles appear across the world, some more notable than others relating to commodities, currencies, property and shares have been prominent since the early 1970’s. With housing and property bubbles, property differing to housing because it includes commercial buildings, occurring in the 1980’s in Japan, Finland, Norway and Sweden, the 1990’s for Thailand, Malaysia, Indonesia and other neighbouring Asian counties, it’s not just the UK and America who have seen the boom and bust. Kindleberger & Aliber (2003) define a bubble as “a non-sustainable pattern of price changes or cash flows”.

History has taught us that the implosion of bubbles is quite often quickly followed by economic failure and the collapse of banks and other financial firms, followed by a sluggish economic growth in years to come. Wall Street Crash (1929) & the sub-prime collapse of America comes to mind. Global recession and depression. Some Journalists compared the collapse of the American property bubble to the Wall Street Crash and rightly so.

Revisiting the History

I've attached an extract from Kindleberger & Aiber (2003) who in their book, Manias, Panics and Crashes: A history of Financial Crises, provided an appendix at the back of their book presenting chronological order of previous financial crises.

Kindleberger, C & Aliber, R (2003). Manias, Panics, and Crashes: A history of Financial Crises. 5th ed. New Jersey: Wiley Investment Classics. 256-265.

Chapter 15.....

While looking into research for this blog, I came across a website established by Chris Martenson. He provides a crash course in finance, banking, and science.

His 15 minutes video on “bubbles” I found to be very interesting. With some research I found he has a PHD in neurotoxicology, and an MBA in Finance with 10 years’ experience in corporate finance and strategic consulting. Here is the link to his video explanation of bubbles.

I suggest this to anyone who doesn't understand bubbles or how they occur. It does look primarily at the American housing bubble but it’s all relevant. 

History at a glance – “This time, it’s different”

They've shaped and crippled economies, they've had an effect on each and every one of us but how do we know when a bubble exists? Well I’ll tell you, a bubble exists when asset price inflation rises beyond what incomes can sustain. Economic bubbles have been around for generations with the first recorded bubble, Tulip mania, dating back to the 17th century. Although there has only been 6 significant cases pre twentieth century, over the past 100 years, bubbles have arguably become more destructive to the economy. I know you probably don’t remember the Wall Street Crash (1929), but fundamentally, that was the boom and bust of an economic bubble which plunged the world into depression. Now at this point I have to restrain myself from going off in a tangent about the Wall Street Crash being a catalyst for the rise of the Nazi’s, this is neither the time nor the place.

Personal interests aside lets fast forward 71 years to 21st century, home of the real estate bubbles. Now the UK housing bubble burst around 2006/2007, but still today it is a hot topic amongst journalists, academics and the government, and will continue to be until regulations tighten and effective preventative measures are developed and tested.

An Introduction of sorts

I'd like to welcome you to my blog and will begin by explaining why I'm here and what I'm doing. As a student at Queen’s University I have been asked to create a blog. Now as an average or at least what I consider average, university student from Northern Ireland blogging has never been something I considered a hobby but as part of my Money and Banking module for my Masters in Accounting and Finance I have been asked to do so. 

With the various and open ended topics given I have chosen to take a look at the UK housing bubble for a number of reason. Firstly I believe housing can be a real money maker and a sound investment if you do your research and it is most certainly something I would like to be involved in when I have the capital to do so, and after all who doesn't want to make more money? Secondly I have many questions I want to ask, and I will hopefully find my answers out there, whether it be through the Internet, academic journals, textbooks, the newspaper or the news. Finally I want to compare how the UK housing market and the housing markets across Europe and the rest of the world are matching up in comparison.

What does this blog set out to do? I will briefly look at the history of bubbles, specifically housing bubbles, and I will be focusing primarily on the UK housing bubble and where we are today. I will glace at how the American housing bubble and global recession has affected the performance and recovery of housing in the UK. Key areas I aim to address are the "mini-economies" across Britain, the likes of Aberdeen and London where the recession was hardly felt and how housing was affected there. I will finalise by drawing back a comparative analysis to Northern Ireland and present my conclusions.

Now at this point I’m not sure if my peers are interested or motivated by the concept of writing a blog but I feel this could be an interesting journey to keep myself motivated and up to date in parts of the economy that interests me and this could well develop into something more than coursework but a hobby instead. Let’s see how this turns out I suppose…..