Long-term benefits of a hard landing

Published in FT, August 23, 2006

Sir, While you correctly argue (“Hard edge of a soft landing for housing”, August 19,) that “even if gradual, a global housing slowdown would be painful” you do not really dare to put forward the hard truth that the gradualism of it all could create the most accumulated pain.

Why not try to go for a big immediate adjustment and get it over with? Yes, a collapse would ensue and we have to help the sufferer, but the morning after perhaps we could all breathe more easily and perhaps all those who, in the current housing boom could not afford to jump on the bandwagon, would then be able to do so, and take us on a new ride, towards a new housing boom in a couple of decades.

This is what the circle of life is all about and all the recent dabbling in topics such as debt sustainability just ignores the value of pruning or even, when urgently needed, of a timely amputation.

PS. At World Bank 2003: “Burning a little each year, thereby getting rid of some of the combustible materials, was much wiser than today’s no burning at all, that only allows for the buildup of more incendiary materials, thereby guaranteeing disaster and scorched earth, when fire finally breaks out, as it does, sooner or later.”

PS. When the moment came, 2007-08, they preferred to kick the can down the road. This would have had a better chance of success if they had eliminated the distortions in the allocation of credit to the real economy that the risk weighted capital requirements for banks cause. Unfortunately they did not, and the crisis can is still out there and it will roll back on us... ever so much

PS. December 2018: “What goes up too much must come down too much. The best countercyclical policy there is, is the elimination of the procyclical ones.”