Between Debt and the Devil: Money, Credit, and Fixing Global Finance

Princeton University Press has a new book out.The Economist reports:

In 1928, property lending comprised 30% of all bank loans across 17 advanced economies; by 2007, this proportion was approaching 60%.

So when central banks cut rates to stimulate the economy, the newly created credit may well be used not to buy new assets, but to buy existing properties. The result can be a speculative bubble. When it bursts the economy can be damaged, as asset prices fall, leading to a rise in bad debts; a debt-deflation cycle. A further problem is that rising asset prices deliver big gains to the wealthy, who have a lower propensity to spend than the worse-off. The result is sluggish growth in demand unless the middle-classes and the poor borrow to maintain their standard of living. But that creates the fuel for the next crisis.

Bubbly.