We now live in an "asset-backed economy". Our spending decisions are dependent on asset values like house and share prices. In turn these are inextricably linked to burgeoning debt. But asset prices are now subject to fiercely volatile boom and bust cycles, which threaten serious recession, thus putting more downward pressure on prices and more damage to the financial system, leading to the danger of deflation. Since 1991 Japanese land prices have fallen 90 per cent. In a readable, non-technical guide the author explores the implications (e.g. bad for real assets, possibly good for some financial assets) and the solutions for individuals, companies and central banks now that asset prices dominate the economic system. Underlying all of this is the question of where asset prices should be, for example what is the "right" price earnings ratio for stocks or house prices? This is a highly controversial area but the author argues, if there are not exact levels, there are ranges or averages for these assets in which individuals can invest accordingly.

 

John P. Calverley is Chief Economist and Strategist at American Express Bank. He has been analyzing and writing on economics and markets for more than 25 years. Based in London he is responsible for the Global Economics Unit's economic and investment research capability, advising management and clients.

He edits the Bank's suite of publications on economic and market trends, Economics for Investment. He the author of numerous articles on international economic issues and several books including Emerging stock Markets after the Crisis and Investor's Guide to Economic Fundamentals.

He often appears on CNN, CNBC, and the BBC – where he successfully predicted the last housing crash – and speaks frequently at international conferences and seminars.