Nouriel Roubini On Why the U.S. Is Different From U.K., Australia

Nouriel Roubini have a good blog post answering the bullish argument that the U.K. and Australia (allegedly) went through housing busts without a recession, so therefore the U.S. will be able to do that too.

Roubini points out that there several important differences, most notably that the U.K. and Australia have had a more symmetrical monetary policy, raising rates with the intended effect of containing the housing bubble, a policy which both Greenspan and Bernanke have opposed. Greenspan and Bernanke have instead favored and practiced the assymetrical policy of not raising rates when bubbles are created while cutting them when the bubbles are bursted, something which have allowed the bubble to get worse in America.

Moreover, particularly Australia had the luck of benefiting from a positive terms of trade shock just when the Aussie housing bubble bursted.

It could be added that the U.K. actually never saw its housing market slump, it was only a case of a temporary deceleration of the rate of price increases, not really comparable to the actual slump we saw in Australia and which now appears to be coming to America, so the U.K. is hardly an example of an economy with a bursted housing bubble.