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It's a myth that banks lend their reserves in some money multiplier style fashion and that the Central Bank can control the rate of inflation directly by steering the banks to act in precise ways. Hat Tip to Cullen Roche

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When it comes to net worth, what the stock market is to the US, housing is to China. Hat Tip to Zero Hedge

When the world is suffering from insufficient demand, however, clearly the problem we face today, income inequality and excess savings are the problem, not the solution. There may be plenty of good investments that are not being funded in the US, but the reason they suffer from lack of funding, unlike in the 19th Century, is not because capital is to scarce or too expensive. Capital is actually too plentiful, and this shows up in the speculative flows that have driven global stock and bond markets to unreasonable levels. It is weak demand or political gridlock that prevents productive investments from being made. Hat Tip to Michael Pettis

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The first important insight from our data collection effort is that the sharp increase of credit-to-GDP ratios in advanced economies in the 20th century has been first and foremost a result of the rapid growth of loans secured against real estate – i.e. mortgage and hypothecary lending. (A hypothec is a right linked to property.) The share of mortgage loans in banks’ total lending portfolios has roughly doubled over the course of the past century –from about 30% in 1900 to about 60% today, (U.S.).

In other words, banking today consists primarily of the intermediation of savings to the household sector for the purchase of real estate. The core business model of banks in advanced economies today resembles that of real estate funds: banks are borrowing (short) from the public and capital markets to invest (long) in assets linked to real estate.

By contrast, nonmortgage bank lending to companies for investment purposes and nonsecured lending to households have remained stable over the 20th century in relation to GDP. Nearly all of the increase in the size of the financial sectors in Western economies since 1913 stems from a boom in mortgage lending to households and has little to do with the financing of the business sector.

Household mortgage debt has typically risen faster than asset values, resulting in record-high leverage ratios that potentially increase the fragility of household balance sheets and the financial system itself.

Mortgage lending booms were only loosely associated with financial crisis risks before WW2, but since then real estate credit has become a significant predictor of impeding financial fragility in the postwar era.

Since WW2, it is only the aftermaths of mortgage booms that are marked by deeper recessions and slower recoveries. Both in normal recessions and in financial crisis recessions, the slump is deeper and the recovery slower if mortgage growth was rapid in the preceding boom.

In the second half of the 20th century, banks and households have been heavily leveraging up through mortgages. Mortgage credit on the balance sheets of banks has been the driving force behind the increasing financialisation of advanced economies. Our research shows that this great mortgaging has been a major influence on financial fragility in advanced economies, and has also increasingly left its mark on business cycle dynamics.

CBC's Amanda Lang interviews investment manager Hillard MacBeth, author of the book "When the Bubble Bursts: Surviving the Canadian Real Estate Crash."