When the economy was booming, the government and news media were happy to tell the truth:
"The world economy is driven by the American consumer and the American consumer is feeling pretty good about his ever-increasing net worth thanks to the red hot market for single family homes.”
If we're facing the opposite of this (and we are), then what's next for the financial system?
It should be obvious, but the government goons and their friends on Wall Street can't bear to let the cat out of the bag. The US real estate market which drove the world economy is not only a weak it's on the verge of a truly massive collapse.
The numbers don't lie
Thanks to ever-increasing foreclosures - and the numbers are about to get even worse - there is a glut of supply on the market. Meanwhile, it's been many decades since the American consumer has been in such bad shape.
How bad are things out there?
The most recent issue of Barron's magazine (October 11, 2010) puts the real, uncooked US unemployment figure's at a sobering 22.5%. That is NOT a typo. You can read this stat in Randall W. Forsyth's article “Debasement Blues.”
So who is going to buy this ever-increasing inventory of homes?
There's only one way to sell physical assets that no one wants, and that's to cut the price.
As real estate prices go down, the goofy loans written against these things become even more worthless so we get a double whammy of wealth destruction.
Homeowners will find their net worth's declining and who ever it is who owns all this crazy real estate paper will find the value of their portfolios declining apace.
By the way, homeowners are not only facing wealth destruction in the form of paper declines, many are finding themselves with properties they cannot sell yet still have to pay taxes, mortgages, and maintenance charges on.
How much wealth is being destroyed right now as the US property market spirals down a black hole?
I don't know, but the number is surely in the trillions and far outstrips the puny (and misguided) stimulus.
So what does it all mean?
If you are a believer in the inevitability of inflation in the short term, you might want to rethink that.
If you think the stock market is attractively valued, you might want to rethink that.
If you think current real estate prices are attractive, you might want to rethink that.
If you think ever higher commodity prices are a short-term inevitability, you might want to rethink that.
The government program of handing easy money to banks so they can play the various markets and keep them propped up is something that is not going to work forever.
When the party is finally over, and it will be, you'll see a rush for the exit that will make Chernobyl look like a tea party.
EVERYTHING will be on sale and buyers will be near impossible to find (just as were seeing in many US real estate markets)
Cash - ironically, the crooked US dollar - will be king again (for short time at least) - in a way few people can imagine now.
That's how I see it at least and I think the numbers back me up.