4min chapter

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The Modern Empiricist Proving Old Wisdom On Household Debt And Recession - Amir Sufi

The Joe Walker Podcast

CHAPTER

The Importance of Credit in Housing Bubbles

If we accept that credit supply shocks are what kickstart housing bubbles, what causes the credit supply shock? That's a really difficult question, by the way. The most likely explanation when we look at the historical record is some change in the economy that leads to a rapid influx of savings into the financial system. A lot of East Asian countries get in big trouble in the late 1990s and they start buying U.S. treasuries or Latin American debt. Paul Volcker raises interest rates hugely in the 1980s and you see this massive crash.

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