Principal danger is with emerging economies such as China, where equity and housing asset prices are soaring
Peter O’Neil
Sun
Canadian William White, who is believed to be the only senior economist within the world of central bankers who warned publicly about pending economic disaster before the 2008 global meltdown, said Tuesday that new “bubbles” in the financial system are emerging–and could burst.
White says he shares the concerns highlighted in this week’s edition of the influential British newsmagazine The Economist, which declared: “Bubble Warning: Why Assets are Overvalued.”
“I don’t think it’s alarmist or premature,” he told Canwest News Service.
White, a northern Ontario native who now lives in Switzerland, retired in 2008 from his role as chief economist at the Switzerland-based Bank for International Settlements, an international institution that advises the world’s central bankers.
For more than a decade, White and one of his senior researchers warned in BIS annual reports and at public events that the global economy was facing growing risk because of speculative bubbles, particularly in areas, such as the overpriced U.S. housing market.
While they weren’t alone in expressing concern about weak government regulations covering the lending practices of financial institutions, they took the provocative position that central bankers should play a far more active role by raising interest rates to contain speculative excesses–even during periods of low inflation.
Among those who dismissed White’s concerns were Alan (The Maestro) Greenspan — the once-revered chairman of the U.S. Federal Reserve who held the position from 1987 to 2006 — and current chair Ben Bernanke.
White says he agrees with The Economist’s argument that the principal danger of speculative bubbles forming and exploding are in emerging economies such as China, where equity and housing asset prices are soaring.
On Tuesday, the Chinese government took action to cool its overheating economy by raising the proportion of deposits held in reserve by banks.
White said equity prices in major industrialized countries, such the U.S., appear overpriced by historical standards, though that factor isn’t yet accompanied by two other factors associated with bubbles: a decline in savings rates and a rapid credit expansion.
“In a certain sense, all of that points in the direction of ‘don’t worry too much about the industrialized countries,’ ” he said.
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