For the past few years – since the stock market collapse of 2000 and the mild economic recession of 2001 – a consumer-led boom in the US and other so-called Anglo-Saxon countries, such as the UK and Australia, has buoyed up the world economy.
Underlying the propensity to splash out money has been property. House prices have risen hugely, contributing to a significant increase in household net wealth. That has enabled households to borrow on the equity in their homes and spend, spend, spend. This borrowing has compensated for a relatively weak rise in employment, wages and investment in the OECD countries since 2001. But the great property party is nearly over. Will households and the world economy be left with one hell of a hangover?
I reckon that last year’s house price corrections in the UK and Australia are models for what could happen in the US...
