Also, investment however flawed is simply not the same as a ponzi scheme.
Fundamentaly however you have to realise that low interest rates are not artefical. If the natural interst rate were as high as in 2006 with the rates we observe now we would see a massive collapse of the money supply and a recession worse then the great depression. Interest rate in the hole world have been going down since 1970. A recession itself depresses real rates, because investment is simple not as profitable.
The idea that the central bank can indepentenly fix housing bubbles and create stable demand is just flawed, its simply not possible. Its the wrong tool for the thing you want to fix.
The central bank could simple start buying and selling property instead of bonds, but that just replaces stability in one market with instability in another.
I was responding specifically to your statement:
>Aditionally the idea that all these things are bubbles is quite suspect
I agree with your point that monetary policy may not the right place to solve a property bubble. I disagree only with the assertions that property bubbles might not currently exist and that bubbles can never be easily identified.
>Also, investment however flawed is simply not the same as a ponzi scheme.
It is if the return on your investment is solely dependent on the continued input of other people's investments.
>Fundamentaly however you have to realise that low interest rates are not artefical.
I am not arguing that they are. Are you confusing me with another poster?
>The idea that the central bank can indepentenly fix housing bubbles and create stable demand is just flawed, its simply not possible. Its the wrong tool for the thing you want to fix.
I agree.
If your meaning of 'bubble' is that at some unknown time in the future the price will be lower then it is now, then the concept is economically speaking useless.
> It is if the return on your investment is solely dependent on the continued input of other people's investments.
Still not the same thing. There is still a real asset that exists, it might change in price but it exists.
In a Ponzi scheme that is not the case, it falls apart if there is no further and nobody will have anything.
That is why you can go to prison for a Ponzi scheme but not for property speculation.
What do you define as 'real demand'? There are three main areas of demand for housing property:
1. People requiring shelter (i.e. people who will purchase a property to live in themselves) or
2. People purchasing property to extract rents (landlords) or
3. People purchasing property to later on-sell for a greater amount (property investors)
It's the third class of buyer that many believe is driving demand, and there's certainly a strong argument that the property investor class is bigger today because of depressed interest rates. Because of this increased demand, prices increase. But that price increase is driven only by the perceived future sale value of the property. This is why it's a bubble - The returns are predicated only on continued buy-in to the market. It's little more than a ponzi scheme.
This assertion falls apart if you don't accept the premise that current activity is being driven by investors, of course.