The Banker (The Bracken column), 1st February 2007
There is a high risk that the next recession will be severe, either by being prolonged or by being unusually deep. The fundamental problem is that asset prices have risen to such high levels relative to incomes. This applies to shares, houses, other forms of real estate, gold and even art.
With assets so far out of line with incomes, either asset prices will have to fall in nominal terms or incomes will have to rise at an inflationary pace. It will be extremely difficult to manage the economy during the adjustment process, whether the route is rising inflation or falling asset prices.
Full article: Too weak for liquidity injection – The Banker Feb 2007