Posts Tagged ‘interest rates’

Student Housing Breathes Relief

Tuesday, July 24th, 2012

On June 29, Congress avoided doubling interest rates for new federal student loans. Republicans and Democrats came together to keep interest rates on new Stafford loans, which are subsidized by the federal government, at 3.4 percent. The rates were set to double in July. It’s good news not just for matriculating freshmen but also for the student housing sector, including developers and REITs which rely on a funded student population.

The news comes at a time when the student housing sector is thriving. Budget shortfalls coupled with lengthy procurement and contracting processes within public and private universities have created a need for real estate firms that can own and operate residential facilities (usually under a long-term ground lease if the facility is on campus) so schools can keep their cash for core functions.  The largest student housing REIT, American Campus Communities (ACC), with a market cap of around $3.36 billion, acquired seven properties worth a total of approximately $250 million in the last 12 months. At Arizona State University, the company has already invested $350 million and privately owns the school’s honors college, an on-campus dormitory and a student apartment complex.

Other players are Education Realty Trust (EDR) with a market valuation of about one billion dollars, and Campus Crest Communities worth $322 million. According to National Real Estate Investor, Nashville-based EdR is in discussions with the University of Kentucky to completely revamp the school’s student housing portfolio. “The entire industry is buzzing about the implications this one deal might have on other projects,” according the report.  Charlotte, N.C.-based Campus Crest, meantime, has six new student housing properties under development, three of which are wholly owned by the REIT and three of which are owned by a joint venture. The six projects have a price tag of nearly $157 million.

Who Wants To Be a Millionaire?

Tuesday, July 10th, 2012

Wobbly economies that shook up markets in 2011 took their toll on the world’s rich, though fast-growing Asia for the first time had more millionaires than North America.  According to the report, the global personal wealth of people worth $1 million declined in 2011 for the second time in four years, a side effect of the Eurozone crisis and economic sluggishness in developed markets.  Several emerging markets also suffered, with the number of millionaires in India and Hong Kong falling by nearly 20 percent.  With Europe’s debt crisis bedeviling the continent, the outlook for wealth creation in 2012 remains weak, according to a report prepared by Capgemini and RBC Wealth Management.

The world’s millionaires grew by 0.8 percent to a record 11 million, according to the report, yet their collective wealth fell by 1.7 percent to $42 trillion.  Only the Middle East experienced no decline in wealth.  It was the first global decline in millionaire wealth since the 2008 financial crisis, when the ranks of the wealthy fell 15 percent and their wealth declined by 20 percent.

Families worth $30 million or more saw their collective wealth fall 4.9 percent and their ranks shrink by 2.5 percent to just 100,000 individuals.  This decline reflects holdings in higher-risk and less liquid investments like hedge funds, private equity and real estate.

“It was a challenging environment for our clients,” George Lewis, global head of wealth management at Royal Bank of Canada, said.  The Toronto banking giant began sponsoring the widely watched report in May.  Lewis pointed out that the number of high net worth individuals rose even as overall wealth fell.  “It at least suggests there continues to be upward mobility and the ability to generate wealth around the world,” he said.

Curious about how many millionaires live in nations around the world?  Read this:  Singapore toppled Hong Kong as home to Asia’s wealthiest in 2011 as declining stock markets hit the former British territory significantly harder than its Southeast Asian rival.  Hong Kong, whose stock market capitalization fell by 16.7 percent last year, saw a bigger decline in the ranks of people with more than $1 million to invest as a larger proportion of that wealth was tied up in equity.  Southeast Asia also has shown stronger signs of resilience to global turmoil than the rest of Asia as domestic spending offset struggling exports.  The number of millionaires in Hong Kong fell 17.4 percent to 83,600 last year, compared with a decline of 7.8 percent to 91,200 people in Singapore, according to RBC Wealth’s head of emerging markets Barend Janssens.  Hong Kong took the lead from Singapore in 2010 after falling behind in 2008.

China still is home to the most high net worth individuals in Asia Pacific, with a population of 562,000 millionaires.  The top five countries by population of high net worth individuals are the US (3.07 million), Japan (1.82 million), Germany (951,000), China and the United Kingdom (441,000).  According to RBC, this significant concentration of high net worth individuals is why wealth managers are attracted to Asia even if they have to contend with competition from domestic banks.

Are the troubles in the Eurozone likely to impact Asia?  Lessons learned from the 2008 financial meltdown show that while Asia tends to get hit when the world economy stumbles, the severity varies depending on which countries have the biggest trade and financial linkages, and are best-prepared with big currency reserves, overflowing government coffers and central banks with the ability to cut interest rates.  Generally speaking, Asia has more room than the West to react with interest-rate cuts and government spending.  But some things have changed since 2008, and some countries, primarily India, Vietnam and Japan, may not be in shape to survive another financial jolt.  “As we saw with Lehman, when you get a seizure in the global financial system, nobody can hide from that in the short run,” said Richard Jerram, chief economist at the Bank of Singapore.  In that type scenario — which analysts say could still occur if Greece doesn’t live up to its commitments and leaves the Euro, or Spain and Italy require a bailout that Europe can’t afford — Asian stocks and currencies would fall, shipping lanes would see less business, and lending to consumers and businesses would dry up, slowing world economies.

Bernanke Defends Fed Policy on Job Growth, Inflation

Wednesday, February 22nd, 2012

Although the economy has improved in the past year, Federal Reserve Chairman Ben Bernanke told lawmakers that they still must cut the growing budget deficit.  “We still have a long way to go before the labor market can be said to be operating normally,” Bernanke said in testimony to the Senate Budget Committee.  “Particularly troubling is the unusually high level of long-term unemployment.”

According to Bernanke, the 8.3 percent unemployment rate understates the weakness of the labor market.  He reminded the committee that it is necessary to also consider other measures of the labor market, including underemployment.  Although the jobless rate has fallen five months in a row, it is still higher than the 5.2 to six percent that the Fed believes is consistent with maximum employment.  The percentage of the unemployed who have been jobless for 27 weeks or longer rose to 42.9 percent in January, compared with 42.5 percent in December, according to the Department of Labor.

“Over the past two and a half years, the U.S. economy has been gradually recovering from the recent deep recession,” Bernanke said.  “While conditions have certainly improved over this period, the pace of the recovery has been frustratingly slow, particularly from the perspective of the millions of workers who remain unemployed or underemployed.”

At the same time, Bernanke cautioned the Senators against holding back short-term economic growth by cutting the budget too much in the name of controlling the deficit.

The upbeat jobs data – the private sector added 243,000 jobs in January, sending the unemployment rate down to 8.3 percent – caused some Senators to ask about the Fed’s monetary policy as the economy shows more signs of life.  The Federal Open Markets Committee (FOMC) recently said that it expected to keep interest rates at historically low levels through late 2014.  Bernanke said the strategy is a reaction to concerns that low interest rates might set off inflation by noting that prices did not rise significantly during 2011.

Rather, Bernanke said that the Fed is consciously taking a “balanced approach” to spur economic growth with low inflation.  Previously, Bernanke told the House Budget Committee that the Fed would not sacrifice its two percent inflation goal to jump start employment.  ‘Over a period of time we want to move inflation always back toward 2 percent,” Bernanke told Representative Paul Ryan (R-WI), the committee’s chairman.  “We’re always trying to bring inflation back to the target.”

Bernanke offered a strong defense of the Fed’s inflation goal after Ryan suggested it should tolerate higher inflation to assure maximum employment.  “In looking at the two sides of the mandate, the rate of speed, the aggressiveness, may depend to some extent on the balance between the two objectives,” Bernanke said.  “We are always trying to return both objectives back to their mandate.”  Ryan, who has backed legislation to require the Fed focus exclusively on stable prices, said that he is “greatly concerned to hear the Fed recently announce that it would be willing to accept higher-than-desired inflation in order to focus on the other side of its dual mandate.”

Also during his testimony, Bernanke reiterated a promise to prevent Europe’s financial crisis from harming the American economy. “We are in frequent contact with European authorities, and we will continue to monitor the situation closely and take every available step to protect the U.S. financial system and the economy,” Bernanke told the Senate Budget Committee.

Bernanke: No QE3

Wednesday, October 5th, 2011

Federal Reserve Chairman Ben Bernanke, in a long-awaited speech in Jackson Hole, WY, announced no new steps the Fed will take to prop up the shaky U.S. economy.  Rather, he expressed optimism that the economy will continue to recover, based on its inherent strength and from assistance provided by the central bank.  Bernanke restated the Fed’s determination to keep the federal funds rate “exceptionally low” for a minimum of two years.  He did not say what many had been hoping to hear: that the Fed would begin another round of quantitative easing – usually referred to as QE3.

 Bernanke said that he expected inflation to remain at or below two percent.  Additionally, he acknowledged that the recent downgrade of the nation’s AAA credit rating had undermined both “household and business confidence.”  He implied that there was only so much more the Fed can do to stimulate the economy, and that the time has come for Congress and the Obama administration to create “policies that support robust economic growth in the long term,” to reform the nation’s tax structure and to control spending.

“In addition to refining our forward guidance, the Federal Reserve has a range of tools that could be used to provide additional monetary stimulus.  We discussed the relative merits and costs of such tools at our August meeting.  We will continue to consider those and other pertinent issues, including, of course, economic and financial developments, at our meeting in September,” Bernanke said.  He went on to clarify the Fed’s guidance about how long interest rates will remain exceptionally low.  “In what the committee judges to be the most likely scenarios for resource utilization and inflation in the medium term, the target for the federal funds rate would be held at its current low levels for at least two more years.”

As Bernanke delivered his remarks, the government cut its estimated 2nd quarter GDP growth to a paltry rate of one percent, a revision from the 1.3 percent previously reported.  The revision was expected and primarily due to weaker exports.  In more positive news, private spending and investment in April through June were slightly higher than initially estimated.  The GDP grew by an annual rate of just 0.4 percent in the 1st quarter.  The 2nd half of 2011 is expected to be somewhat stronger, but a major driver of the economy — consumer spending — remains weak amid slow hiring and sluggish income gains.

“This economic healing will take a while, and there may be setbacks along the way,” Bernanke said.  “Although the issue of fiscal sustainability must urgently be addressed, fiscal policymakers should not, as a consequence, disregard the fragility of the current economic recovery.  Although important problems certainly exist,  the growth fundamentals of the United States do not appear to have been permanently altered by the shocks of the past four years,” Bernanke said. “It may take some time, but we can reasonably expect to see a return to growth rates and employment levels consistent with those underlying fundamentals.”

“Economic performance is clearly subpar, and from that standpoint the case for some sort of further economic-policy assistance is just being made by the poor performance,” said Keith Hembre, chief economist and investment strategist in Minneapolis at Nuveen Asset Management.  Although Bernanke said the Fed has stimulus tools left, “the threshold to utilizing them is going to require fairly different conditions than what we have today,” such as lower inflation or a return of financial instability, Hembre said.

Bernanke also used the occasion to scold Congress for its tardiness in resolving the deficit debate. “The country would be well served by a better process for making fiscal decisions,” Bernanke said at the Federal Reserve Bank of Kansas City’s annual economic symposium.  “The negotiations that took place over the summer disrupted financial markets and probably the economy, as well, and similar events in the future could, over time, seriously jeopardize the willingness of investors around the world to hold U.S. financial assets or to make direct investments in job-creating U.S. businesses.”  Bernanke implied that a return to economic prosperity is at stake.  “I do not expect the long-run growth potential of the U.S. economy to be materially affected by the crisis and the recession if — and I stress if — our country takes the necessary steps to secure that outcome,” he said.  The budget process, according to Bernanke, would be more effective if negotiators set “clear and transparent budget goals” and established “the credibility of those goals.” 

Bernanke reassured investors that United States prospects for growth are sound over the long term and that the Fed has tools to aid the recovery if needed, even though he is not planning another stimulus at this time.  “What no action will do is give confidence to investors that things are not as bad as many people perceive, otherwise he would’ve acted,” Keith Springer, president of Springer Financial Advisors in Sacramento, CA, said.  “Investors will eventually see the positives.”

Rick Mattoon on the Economy: On the Brink or On the Mend?

Tuesday, August 30th, 2011

Emerging from a financial crisis of the enormity that the United States has lived through the last several years, it is natural that the road to recovery is slower and bumpier than in a typical recession.  This is the opinion of Rick Mattoon, a Senior Economist and Economic Advisor at the Federal Reserve Bank of Chicago,  Previously a Policy Advisor to the governor of Washington, he is also a lecturer at the Kellogg School of Management at Northwestern University.

According to Mattoon, the irony of the Monday after Standard & Poor’s downgraded the United States’ credit rating from AAA to AA+ is that while the Dow Jones Industrial Average nosedived by 635 points, investors were still putting their money into Treasury notes.  Treasuries, which theoretically should have been affected by the credit downgrade, remain attractive to savvy investors.  The most significant impact of the credit downgrade is its effect on municipal bond issuances and the cost of certain kinds of credit that historically have been backed by the United States’ AAA standing.

From the Federal Reserve’s perspective, Mattoon says the central bank is going to continue making it easy for people to borrow and lend money to create the favorable conditions that will turn the economy around.  At present, he says the issue isn’t so much one of supply but demand.  A lot of people would like to take advantage of the current low interest rates, but can’t because they are not considered creditworthy due to tighter lending standards.  The Fed’s policy of quantitative easing (QE) has had some success, primarily — and until recently – the stock market rally and low interest rates.

The expression of “stall speed” is used to describe the pace of economic recovery as compared with the five percent rate of growth the country needs.  Mattoon says that this is a difficult process that has not been helped by other one-time shocks to the economy.  A case in point is March’s Japanese earthquake and tsunami, which caused supply-chain disruptions.  Another was the unanticipated spike in oil prices that dampened consumer spending.

The slow pace of job creation – just 117,000 created in July after two months of little employment growth – is also negatively impacting the economy.  The way the public sees it, job creation is currently the # 1 economic factor – particularly to the approximately 50 percent of the unemployed who have been jobless for six months or longer.

One game changer lies in the fact that Americans are currently saving more money than they did in the past – as much as six or seven percent of income when compared with a few years ago.

In terms of commercial real estate, the 1st half of the year saw tremendous amounts of capital raised for acquisitions, primarily for core $100 million transactions.  The market’s comeback depends on job growth.  According to Mattoon, if office employment ticks up, there will be greater demand for commercial real estate, especially in gateway cities like New York.  Retail will be the most difficult sector to recover, especially in strip malls, which were significantly overbuilt.  The demise of some big-box retailers – most notably Circuit City and Borders – is opening significant retail space that often anchored shopping centers.

To listen to Rick Mattoon’s full interview on whether the economy is on the brink or on the mend, click here.

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European Central Bank Raises Interest Rates to Fight Inflation

Monday, May 2nd, 2011

The Federal Reserve is unlikely to follow the European Central Bank’s (ECB) recent decision to raise interest rates and will hold off until there is looming inflation.  The ECB’s move may be the first of several this year as high oil costs drive consumer prices above its target.  That’s not to say that some members of the Fed’s policy-setting committee are not proposing an increase in the overnight lending rate by three quarters of a percentage point by the end of 2011.

Fed Chairman Ben Bernanke and New York Fed president William Dudley both believe that the economy is still to weak to remove support.  “The old analogy that the Federal Reserve removes the punch bowl just when the party gets going doesn’t apply here because, well, there is no party,” said Bernard Baumohl, chief global economist at the Economic Outlook Group in Princeton, NJ.  “There’s not even a balloon in sight.”

Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, also sees the ECB’s move as having minimal impact on the Fed. “I don’t see that a move by the ECB has any particular influence on our policy posture here in the United States,” Lockhart said.  “Obviously by increasing the differential between short-term rates in the U.S. and short-term rates in the eurozone, you can see some influence” because “exchange markets are affected by short-term rates.  I think some of the dollar selloff reflects some extent of that.”

The ECB “will hike twice in quick succession in April and June to satisfy the core economies’ demand for tighter policy,” said Stuart Thomson, a Glasgow-based money manager at Ignis Asset Management, which oversees about $120 billion.  “But the sensitivity of the peripheral economies to higher rates, both in terms of overall debt and proportion of consumer loans tied to variable interest rates, means the central bank will pause over the summer.”

The Frankfurt-based ECB raised its refinance rate to 1.25 percent from just one percent, the first increase since July 2008.  The ECB also boosted other rates by a quarter point, raising its marginal lending facility rate to two percent and its overnight deposit facility rate to 0.5 percent.  According to ECB President Jean-Claude Trichet, “We did not decide it was the first of a series of rate increases,” emphasizing that the central bank will “always do what is necessary” to assure that inflation expectations across the 17-nation eurozone are given due consideration.

The ECB has forked over billions of dollars in the last year, purchasing bonds from troubled European nations such as Greece, Ireland and Portugal – all of which have been bailed out by the European Union – to assure that they stay afloat.  The bank, whose intention is to focus on inflation is raising interest rates to combat rising prices, a major concern in Germany, which is the ECB’s most influential member.

“The ECB has decided that it will tighten policy for the core countries like Germany that are doing well and leave the non-standard measures support in place for the periphery countries,” said Silvio Peruzzo, an economist at Royal Bank of Scotland Group Plc.  “The rate increase is appropriate and there will be another one as early as June.”

How Canada Avoided a Housing Bust

Wednesday, March 2nd, 2011

Canada avoided the collapse in housing prices that devastated American homeowners and the U.S. economy, thanks to tighter financial regulations, the lack of subprime lending and securitized mortgages. Foreclosures are rare.  As a result, Canadian real estate steadily appreciated while property values in Florida, Arizona and other hard-hit American markets tanked.

According to James MacGee of the Federal Reserve Bank of Cleveland, The United States’ and Canada’s “Monetary policy was very similar in both countries from 2000 to 2008, but housing prices rose much faster in the U.S. than in Canada. This suggests that some other factor both drove the more rapid appreciation in U.S. prices and set the stage for the housing bust.

And what is that other factor?  Canadians are a bit plodding: Perhaps the simplest story is that Canada was ‘lucky’ to be a late adopter of U.S. innovations rather than an innovator in mortgage finance.  In addition, bank capital regulation in Canada treats off-balance sheet vehicles more strictly than the U.S., and the stricter treatment reduces the incentive for Canadian banks to move mortgage loans to off-balance sheet vehicles.”

Relaxed lending standards in the United States, highlighted by the rise in subprime lending, played a vital role in creating the housing bubble. This weakening of standards led to an increase in housing demand.  Mortgages were frequently given to people who were likely to have trouble making payments.  Extending credit to risky borrowers helped fuel the housing boom and set the stage for the resulting surge in defaults and foreclosures, which were a big factor in the housing bust.  Additionally, according to the Case-Shiller Index, house prices in the United States from 2000 through 2006 appreciated at a rate nearly double that of Canadian residential real estate.  In contrast with the United States, Canadian house prices continued to appreciate until late 2008, and are now nearly 80 percent higher in value than in 2000.

MacGee said “The potential risks of increased household mortgage debt depend critically upon its distribution across borrowers. To see how the distribution of mortgage debt has changed, we examined the distribution of the ratio of the outstanding loan to house value (the LTV) of borrowers.  A high LTV implies that a small decline in the house price would leave the owner with negative equity.  Negative equity is problematic as it removes the option for a homeowner who is unable to meet their mortgage payments to sell their home to repay the mortgage.”

Canadian home prices are leveling off in 2011, though, with an overall decline of 0.9 percent anticipated for the year.  A home worth $100,000 will likely decline by $900 in 2011.  In some areas, home prices might actually increase while other areas might see prices fall two or three times as much. The Canadian Real Estate Association (CREA) expects a 7.3 percent decline in home sales in 2011.

“Canadians are debt-averse,” said Kevin Fritz, a Canadian who recently purchased a home and made a 40 percent downpayment. This is an attitude that is partly cultural and partly shaped by banking practices and regulations designed to keep people out of homes unless they can clearly afford them.  “People here don’t leverage.”

“It is a regulatory structure in Canada that created the Canadian mortgage system, and it was a regulatory and political structure in the U.S. that created the U.S. mortgage system,” said Ed Clark, chief executive of TD Bank.  “The irony is…that one of the primal causes of the crisis was the U.S. mortgage system.”

In an interesting aside, more Canadians are finding housing bargains in Florida, and today account for eight percent of residential sales in the state.  Doug Flood, who relocated to the Sunshine State from Toronto in 2008, now runs a business that helps his fellow Canadians find the home they want.  “There’s clearly a perfect storm.  If you’re Canadian, you’ve got very low interest rates at home if you want to borrow against your house.  You’ve got a foreign exchange par, dollar-for-dollar.  And prices down here that are 40 to 50 percent lower than what they were five years ago.”

To listen to our interview with the Brookings Institution about financial regulations, click here.

Low Interest Rates Are Hurting Banks, Pension Funds

Tuesday, December 21st, 2010

Low Interest Rates Are Hurting Banks, Pension FundsThe current ultra-low interest rates are hurting profit margins at banks that depend on the gap between what they charge borrowers and pay depositors to make money.   Pension funds also are hurting, because they are under growing pressure to meet their retirees’ obligations.  Meanwhile, some types of insurance are more costly as firms attempt to regain earnings that will continue shrinking until interest rates rise.  Two years of low interest rates, coupled with the Fed’s plan to purchase as much as $900 billion of U.S. Treasury notes through the middle of 2011, have been a boon to borrowers such as companies, consumers, cities and states.

“It is clear that there are costs,” said Michael Cloherty, chief of U.S. interest-rate strategy at RBC Capital Markets.  “The question is whether the good done by low interest rates is enough to justify forcing people and institutions to incur these costs.”  Although many American banks have recovered from the subprime-mortgage meltdown and the Great Recession, others are finding that low interest rates are hurting their profitability.

Banks that say they have more than $1 billion in assets have seen their net interest margin (a performance metric that examines how successful a firm’s investment decisions are compared to its debt situations)  fall to 3.74 percent as of September 30, compared with 3.85 percent in March, according to the Federal Deposit Insurance Company (FDIC).  “We have probably seen the high-water mark for margins in the 3rd quarter,” said Mark Fitzgibbon, an analyst at Sandler O’Neill & Partners LP.  “In the next several quarters, we will see it move lower.”  Goldman Sachs Group’s Scott McDermott is advising clients – pension funds, endowments and sovereign wealth funds – that low interest rates are “going to be here for a while…  Don’t assume that this environment will disappear next month or next year and things will go back to normal.”

Pre-Crisis Credit Levels Will Return Slowly

Wednesday, August 4th, 2010

 Fed Governor Elizabeth Duke says full recovery from the recession will take time.  As the nation gradually recovers from the Great Recession, several years are likely to pass before lending returns to pre-crisis levels, according to Federal Reserve Governor Elizabeth Duke.  The return of credit growth is far slower than during any business cycle of the last four decades with the sole exception of the 1990 – 1991 recession.  At that time, consumer credit required three years and commercial real estate nearly nine years to recover, Duke said in a recent speech.

Since December of 2008, the Fed has kept its target interest rate at zero to 0.25 percent in an effort to reduce the cost of borrowing and help the economy recover from the Great Recession.  Even so, loans held by commercial banks slid by approximately five percent in 2009.  “Just as the causes for the decline in lending are multifaceted and complex and took time to evolve, the solutions will likely be equally difficult and will take time to fully work,” Duke said.  She is the sole former commercial banker to serve on the Fed’s Board of Governors.  “We at the Federal Reserve, meanwhile, will continue to do everything we can to encourage a return to a healthy credit environment.”

According to data released by the Federal Reserve, consumer borrowing increased in April for the first time in three months.  The Fed’s Open Market Committee notes that household spending is restrained by “high unemployment, modest income growth, lower housing wealth and tight credit.”  Duke said that “Just looking at the statistics, it is not hard to construct a scenario in which consumer demand for credit remains sluggish for quite a while.  Household net worth dropped about 25 percent during the crisis, about 20 percent of mortgage borrowers lack equity in their homes and consumers are quite burdened by debt payments.”

Cheap Money to Build Skyscrapers Has Gone Bust

Thursday, March 4th, 2010

Real estate bubble ends 30-year skyscraper construction spree.  The last 30 years have seen a boom for skyscraper construction because the cost of borrowing money had declined significantly. When investors borrow money to purchase assets, they send prices higher.  The problem is that this borrowing makes the markets susceptible to busts when investors sell assets to pay their debts.  The recent financial crisis was one result of this process, with the debts larger and the price swings broader than has been seen in the past three decades.  According to central bank critics, focusing on consumers – and not on the dangers of asset-price inflation – have encouraged bubbles by keeping interest rates artificially low.

The central bank critics argue that the desire to end the credit crunch may be causing authorities to make the same mistake by maintaining short-term interest rates at less than one percent in a majority of the developed world.  Developing markets, thanks to their tendency to emulate richer nations, have the same cheap-money policies.  The irony is that many of these economies are growing faster than those in the developed world.

For the commercial real estate industry, the bubble means that it is unlikely that we will see more high-profile skyscrapers like the Burj Dubai or Petronas Towers under construction very soon.  All three projects were started during financial booms and delivered in hard economic times.

Listen to our interview with Rick Mattoon, a senior economist and economic advisor in the economic research department of the Federal Reserve Bank of Chicago, on the dangers of asset price inflation.  Click here for the podcast.