STORY OF A CRISIS: MONEY, DEBT AND REAL ESTATE.

Abstract

Adair Turner considering debts, and mortgages in particular, said that the sudden and huge creation of debts is a problem if the money has spent to buy existing assets. He disapproves the theory about what banks do, in fact in our days they do not collect and borrow money. Turner said that banks create money and so purchasing power. And a lot of this money has spent to invest in real estate, for housing and commercial reasons. The lack of free land in the urban centres and the increasing supply of credit make “boom and bust” an inevitable result.

Analyse this subject is interesting because the relationship between real estate, debt, stock markets, purchase power is strong but the “intensity” could be different among countries. The technology changes the markets; the Global Recession has changed our point of view looking at the financial system; an analyse about this topic can be an interesting and initial point to discovery something new about the differences in different economies.

The story of money and debt will be the first subject of this thesis. Starting with how and why the debt was born thanks also to David Graeber in Debt, the first 5000 years. It is interesting because an important role, in debt creation, belongs to the banks but they have changed the way to borrow and to lean money. Another important issue is to analyse the different kind of credit following Werner’s theory. Afterwards we look at the debt today, the derivatives and them role, the public and private debt and the debt creates and invests in real estate. In this part the credit will have a crucial role due to the incredible increasing of credit/GDP ratio in the last decades. It is interesting also the dimension of this “market” and the measure in different countries. An analysis about Real Estate and debt in our days will follow, it will be about these subjects and the differences before and after the Great Global Recession. Turner wrote about the role of real estate in the developed economy and it is interesting to study the difference between what happened in the USA or UK and in Italy or Germany.

The examination of the data about these set of indicators (level of wealth, prices in real estate, dimension of credit) will be in a chapter and the purpose is to discovery what it could be happen in the next years, the importance of real estate market today, how the parliaments legislate in order to stabilize this market.

The objectives of this study are: discovery the different correlation between real estate markets and credit creation among the biggest economies. The real estate market could be also a way to measure the inequality distribution of wealth. At the first glance the country with a bigger ratio Credit/GDP have more volatility in real estate prices. The relationship between GDP and real estate is another crucial issue because in same countries, UK for example, the parliament and/or the governments undertake some policies to stimulate the real estate market and it is interesting to know if these strategies increase or not the inequality.