The Austrian Theory of Boom and Bust with Lawrence H. White

The Austrian Theory of Boom and Bust with Lawrence H. White . The government incentives and tax breaks artificially increased demand in housing markets while the fed lowered the interest rates, creating an incentive for people to get loans. This artificial demand greatly inflated the price of housing. At the same time, speculators who would have purchased treasury bonds got little on their investment because of the low interest rates, so they went to invest in the housing market.



Rising home prices can increase consumption even if there are no home ATM loans. Home prices rise and home owners feel wealthier and consume rather than save. That's one reason the housing bubble was accompanied by a low savings rate. Look at the 1983. Residential real estate investment increased 41% and the savings rate declined substantially in the following years