And just to prove that this isn't a 'Europeans only' party, I've got Eddie from Singapore on the line. He says he can't hold, so I'll pass him straight through to you:
Regarding your point on "secondly on the level of expectations, as young people begin to feel that they may not be that much richer than their parents (if richer at all!!) then they won't be so prepared to indebt themselves long term. Among other things this must affect property values."
You are absolutely right! I personally know of 2 friends in their late-twenties, just got married, and aren’t prepared to indebt themselves (by way of mortgage loans) as much as I did when I was their age. The mentality is different now. When I started work, it was rising wages and property prices. You buy on dips. I don’t think this change of mentality among the young is that widespread yet ... perhaps among some professionals now, but its growing and surelywill continue to do so if the poor state of the economy continues.
An open policy towards foreign labour and immigration is absolutely necessary. You’ve mentioned this before. And Singapore has such a policy. Non-residents probably account for a fifth or more of the people working here now. Number of foreign students have grown rapidly over the years. But the influx is slowing (reversing?) given the recession. Rentals are down sharply with fewer expats. Foreign students are returning home since unable to find job here. Chicken and egg.
How do you now attract immigration without growth? That’s why I also sympathize with the Krugman solution. What alternatives are there .. to stop the vicious circle? Because the longer you leave it alone, the harder it is to pull yourself out of the hole. Listening to Adam Smith here can be dangerous. But Adam’s the rage in Asia. Stephen Roach is quite well quoted here, but I read Andy Xie's stuff mainly through your site. Excess money surely contributed to the crash in Asia. He’s right about too much money going into property. But that was in the past. It was crazy then. I remember a local property tycoon coming out to say that Spore was only a small island (with limited space) at the peak of the boom. And people rushed out and queued days ahead of new property launches.
But too much money now? Money is cheap certainly, but how is it too much? More people are running down their savings. More people are trying to maintain their savings as wages fall. You have too much money if there’s abundant frivolous behaviour. I don’t see that. Banks have excess money. yes. Loan-deposit ratios are ridiciously low. But that's because there are no business opportunities. no loans growth. so some of that money flows back into financial markets. but not much now. retail trading in the equity market is very low. It’s a Keynesian problem I think. The liquidity trap, and pushing on a string. My sense is that the precautionary motive for holding money is high and rising in Asia. I’m attaching an article I wrote, urging the govt to spend more to create jobs. May be a stop-gap measure, but what else is there? This country has consistently ran huge budget surpluses in the past and although the cumulative surplus is not published on a regular basis, my guess is we have a credit position in the region of at least US$100bn (over 100% of GDP).. Think Spore as the reverse of Japan. Surely some payback to the people now?