Michael Wickens's picture
Affiliation: 
Cardiff Business School & University of York
Credentials: 
Professor of economics

Voting history

House Prices and the UK economy

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Question 2: Do you agree that a more widespread weakening of the UK housing market will slow UK GDP growth significantly?

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Make sure to save each question separately

Answer:
Agree
Confidence level:
Confident
Comment:
Would but not necessarily will. The attempt to increase the supply of housing would "weaken" the housing market but would generate output and not slow output growth. One problem with interpreting correlations between the two is reverse causation: slower growth would weaken housing demand. A big unknown factor in housing is monetary policy. If the Bank continues to raise interest rates (as it should) then this will weaken the housing market. This is all to be set against the background of an excess demand for housing in much, but not all, of the country which will make the housing market strong for some time to come.

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Question 1: Do you agree that the phenomenon of declining house prices will ripple out from the London property market leading more UK regions to experience falling prices?

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Answer:
Neither agree nor disagree
Confidence level:
Not confident
Comment:
Declining London house prices is almost certainly due to Brexit, both the movement of people back to the continent and the negative effect of Brexit on the economy of London. The effect on the regions is less clear. Apart from the South East, which will be similar to London, they will be much less affected by either the movement of labour or any decline in the regional economies. The regions will probably see an increase in house prices relative to the South East and London.

Global risks from rising debt and asset prices

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Question 2: Is the loose monetary policy of major central banks responsible for the recent increase in global leverage or asset values?

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Answer:
Agree
Confidence level:
Confident
Comment:
The rise in equity prices is almost entirely due to loose monetary policy through low interest rates and QE. The irony is that the financial crisis was caused by the failure of asset prices to correctly price risk. Monetary policy since then still prevents risk from being correctly priced. As a result, the risk is being borne by banks, asset holders and the tax payer.

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Question 1: Does the world economy face heightened risks arising from an excess of public and private debt and/or inflated asset prices?

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Answer:
Agree
Confidence level:
Not confident
Comment:
Household debt has increased and savings ratios have fallen which has largely reversed what was observed immediately after the financial crisis. One reason is cheap money (see next question); another is the working of life-cycle effects through consumption smoothing as a result of the prolonged recessionary effects of the financial crisis. In addition, low bond yields caused by quantitative easing has seen rising equity prices due to portfolio substitution. As QE is unwound and interest rates are increased, equity prices could fall thereby generating increased financial risks. Increased interest rates could also cause the bankruptcy of zombie companies which are currently kept alive by cheap credit. Another risk to the world economy is the heavy indebtedness of China.

Juncker's State of the Union Address

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Question 2: Do you agree that the euro has had more benefits than costs?

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Answer:
Strongly disagree
Confidence level:
Very confident
Comment:
Benefits for Germany and economies like Germany's but huge costs for Greece, Ireland, Italy, Spain and Portugal. Due to these disparities the euro is not fit for purpose and is probably not sustainable unless all economies become like Germany. This is why it makes sense for Juncker to try to impose German rules on all countries. This is the crucial point of Juncker's speech, not the euro. It also presages political integration in order that countries have a say in setting up and monitoring the rules. The euro is the tail wagging the dog - as intended by the architects of the EU. Ultimately it is all or nothing. So Juncker is correct.

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