History textbook writers are updating the last chapter as we speak, writing about the housing bubble bursting. As you can see by this article, the loss so far has been about $1 trillion. The Yale economist in the article indicates that those losses may triple.
The question is: Will the textbook writers get the root cause correct? It is doubtful, since they get the root cause of the 1929 crash and the ensuing Great Depression wrong. They'll probably blame it on "predatory lending" practices and poor decisions by consumers, which were a factor, but will miss the root cause: unfettered money creation by the Federal Reserve. A dramatic rise in the money supply (artificially created, not a market rise) leads to easy credit. Easy credit leads to malinvestment, since people are intrigued and duped by the easy credit. Once the punch bowl is taken away from this easy credit party (liquidity dries up, since the money printing has to slow down sometime), the contraction begins.
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2 comments:
Fair to say that the market will correct itself and over priced housing markets like California will drop like crazy but not as much in lower cost housing markets like Houston.
Darn, having a mortgage will be like buying a new car, the principal will be higher than the value.
The market will correct itself unless the Fed and other central banks drop in more printed out of thin air money. Then the pain will be forestalled till another day. The more they put it off, the greater the inevitable crash!
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