First stock markets. Now home prices. Bubbles have moved to centre stage in the world economy over the last 20 years and may now be a greater threat to economic and financial stability than ordinary consumer price inflation. We now live in an "asset-backed economy". Our spending decisions are dependent on asset values like house and share prices. In turn these are inextricably linked to burgeoning debt. But asset prices are now subject to fiercely volatile boom and bust cycles, which threaten serious recession. Since 1991 Japanese land prices have fallen 90 per cent.
In a readable, non-technical guide the author explores the implications and the solutions for individuals, companies and central banks now that asset prices dominate the economic system. Underlying all of this is the question of where asset prices should be, for example what is the "right" price earnings ratio for stocks or house prices? This is a highly controversial area but the author argues, if there are not exact levels, there are ranges or averages for these assets in which individuals can invest accordingly.
John Calverley is Chief Economist and Strategist at American Express Bank and has been analysing and writing on economics and markets for more than 25 years. He edits the Banks suite of publications on economic and market trends, Economics for Investment. He is the author of numerous articles on international economic issues and several books including Emerging Stock Markets after the Crisis and Investors Guide to Economic Fundamentals. He often appears on CNN, CNBC and the BBC. He is a Fellow and former Chairman of the Society of Business Economists in the UK and is a Council Member of SUERF (Societe Universitaire Europeenne de Recherches Financieres).
2004, Published by Nicholas Brealey Publishing, ISBN 978 1 85 788348 0, 248pp. HB