Why property is still overvalued!!!!!!!!!!!!!!!

But additionally, this graph show details why the Irish financial sector is in so much trouble. When property prices return to the long term mean, the level of write offs required by the banks will be massive. These write offs will drown the financial institutions themselves and perhaps even the exchequer.

Monetary Expansion & Monetary Contraction

In the aftermath of the great depression, Mr Hoover wrote a letter to the president elect, Franklin D Roosevelt. In the letter Hoover informed Roosevelt that "it would steady the country greatly if there could be prompt assurance that there will be no tampering or inflation of the currency; that the budget will be unquestionably balanced even if further taxation is necessary; that the government credit will be maintained by refusal to exhaust it in issue of securities"

This policy of Hoover was essentially a rejection of the tools of fiscal and monetary policy that were at his disposal. These tools could of limited and reduced the effects of the Wall Street Crash. As a consequence America sled into a very significant deflationary spiral between 1930-1933.

Ben Bernake, the present chairman of the federal reserve has studied the Great Depression with great depth. One of the main conclusions of his studies, is that this deflationary spiral could of been avoided if the Federal Reserve had not caused a contraction of the money supply. Such a contraction is known as monetary contraction

However, there are some very real dangers of implementing a policy of monetary expansion, the opposite of monetary contraction.

If monetary expansion is two aggressive, this will result in significant inflation. Very strong inflation will destroy people's saving and pension funds, place upward pressure on prices and result in social upheaval. Yet, very strong will inflation would have the positive effect of eroding the real value of debt and liberating the borrower from his repayments. Though such inflation could be seen as a reward for reckless borrowing and raises some questions in relation to moral hazard.

Therefore, a policy of expansionary expansion is as dangerous as a policy of monetary contraction as it can destabilize an economy even further, damage consumer sentiment delay any upturn. Thus, an equilibrium must be found between each policy.

Part 4--Maß und Mitte

These periods of relatively rapid growth followed by periods of relative economic stagnation are known as the business cycle. It is an inherent part of the capitalist system.

Some examples of the business cycle are listed above such as the Wall Street crash in 1929 followed by the Great Depression, the huge real estate bubble in Japan in 1980's followed by the "lost decade". Or the Dot Com bubble/Real estate bubble followed by this period of recession that we are currently experiening.

At the beginning of each of these cycles, wealth, jobs and happiness is created through hard work, creativity, late hours and ingenuity.

Yet, years later this wealth, happiness and employment which people had laboured so hard for, is inevitably snatched from grasp as we reach the top of upward swing and enter the downward shift of the business cycle.

Thus, those additional hours that were spent in the office on a Saturday morning instead of watching their kids football match in order to get that promotion amounts to nothing.

However, the severity and the frequency of these upturns and downturns can be reduced by protecting the weak through social and economic order, as highlighted by Wilhelm Röpke, thus ensuring that the Saturday morning in the office was not worthless. This can be achieved through interventions that will accelerate and soften the adjustment process. These interventions will occur through methods that are compatible with the market economy.

As a consequence citizens and companies feel more secure, confident and happier about the future. This confidence ensures that both individuals and citizens do not make stupid and reckless decisions that are purely based on short term thinking and a lack of security. Instead, the existence of economic and social order allows citizens to be prudent and more balanced in their decision making.

Part 3--The Collapse Of The Housing Bubble

06/05/2005 - -------------------- 24/03/2007 -------------------------------04/10/2008

The above actions of the Federal Reserve in the aftermath of dot com bubble and the 9/11 terrorist attacks allowed the US economy to avoid a severe economic slowdown

However, once the housing market bubble imploded the Federal reserve was unable to find another medium that would allow the economy to operate at its full potential because consumer and business confidence was so low, the levels of debt they were carrying are so great, and personal saving rates were minimal.

Today, consumers and business are more concerned with paying off debt instead of buying Channel hand bags and new equipment. Employment thus falls as does the use of existing capital stock.

As we continue to pay back the debt, the values of our houses collapse, our pension funds crumple, unemployment soars and the economy may become deflationary. This will result in debt becoming relatively greater and becoming even harder to repay resulting in even greater levels of savings.

"I need a quick fix of credit"

"Millions of Americans, were being denied credit or facing rising credit card rates, making it more expensive for families to finance everyday purchases”.--Hank Paulson Jr, United States Treasury Secretary

If you do not have the money, then perhaps you should not be able to purchase that good or service. Additionally, it should be explained to Mr Paulson that these people cannot access credit because they are spent out.