[quote=CA renter]…
Don’t forget the effects of low interest rates and high leverage. IMHO, this can be a much more significant cause of bubbles than actual savings. The past couple of decades have seen a significant decline in interest rates and a significant increase in leverage.[/quote]
Lending moves savings, and bad lending can lead to too much savings being directed into a limited pool of assets, driving up the prices of those assets to bubble levels. However, we suffered an increase in the price of almost all assets. Homes and stocks all rocketed up to bubble levels.
The problem was not so much that we were diverting savings money from one type of asset to another. That could be fixed primarily by changing lending practices. We just had too much total savings coming in, and you can’t fix the asset bubble and bad lending that results unless you fix the aggregate mismatch between too much savings compared to the good investment opportunities.
