	Generational Dynamics
	Forecasting America's Destiny ... and the World's

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Generational Dynamics Web Log for 12-Oct-2009
The global housing bubble began in the mid-1990s.

Web Log - October, 2009

The global housing bubble began in the mid-1990s.

This completely explodes the myth that Alan Greenspan caused the housing bubble.

A few weeks ago, I posted the article "The housing bubble began in 1995." That article was based on an analysis that showed that the American housing bubble began in 1995.

From the point of view of Generational Dynamics, that conclusion makes perfect sense. The dot-com stock market bubble also began in 1995. Both bubbles occurred just as the generations of survivors of the 1930s Great Depression were all disappearing (retiring or dying), all at once. Those people had pursued risk-averse investment policies for decades, but by the mid-1990s, they were replaced in senior management positions by Boomers who had no regard for old fogey risk aversion.

Now, a new report by McKinsey Global Institute completes the picture.

Consider this graph from the report:

Housing price index in various countries, 1970-2008 <font size=-2>(Source: McKinsey Global Institute)</font>

Housing price index in various countries, 1970-2008 (Source: McKinsey Global Institute)

This graph shows that, just as in the United States, housing prices in many countries around the world soared, starting in the mid-1990s.

It is thus completely impossible for Alan Greenspan's Fed to have caused the housing bubble by lowering interest rates in the 2002-2005 time frame.

What this DOES show is that the same generational changes that occurred in America also occurred in countries around the world. This is not surprising, since the 1930s Great Depression was a worldwide event, not restricted to the United States.

An interesting exception is Japan, whose real estate bubble began in the mid-1980s -- also at the same time as the beginning of their own stock market bubble! (See "Japan's real estate crash may finally end after 16 years" for a complete analysis.) And that is also precisely the time that the survivors of Japan's previous generational stock market crash (1919) all retired and died.

I'm always hearing from people who say that "you haven't proven any of the claims you make about Generational Dynamics, and the things you've gotten right are just lucky guesses." Well, I don't know how much more proof you need, and Generational Dynamics seems to produce one "lucky guess" prediction after another. (See "Generational Dynamics forecasting methodology" and "List of major Generational Dynamics predictions.")

The analysis that the global housing bubble began in the 1990s in multiple countries around the world really completes the picture, and provides almost irrefutable evidence of the validity of the Generational Dynamics analysis of the financial crisis.

There's plenty of criticism these days of mainstream macroeconomics, which has totally failed to predict the financial crisis, and mis-predicted many things. (I was reminded this weekend that Ben Bernanke said early in 2008 that the "subprime mortgage crisis was completely contained," and would not affect the broader economy.) And yet, mainstream economists seem to have some kind of neuron dislocations in their brains, that make it impossible for them to understand generational explanations of macroeconomic trends, no matter how obvious the generational explanation is. If economists began incorporating generational theory into their macroeconomic models, then they'd finally start producing more accurate results, though they may not like what they get.

(Comments: For reader comments, questions and discussion, see the Financial Topics thread of the Generational Dynamics forum. Read the entire thread for discussions on how to protect your money.) (12-Oct-2009) Permanent Link
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Generational Dynamics Web Log for 12-Oct-2009 The global housing bubble began in the mid-1990s.

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Generational Dynamics Web Log for 12-Oct-2009
The global housing bubble began in the mid-1990s.