bubba99- you are so right! Even flat home values will cause a recession, since 70% of GDP is consumer spending, which comes from MEW.
I hope everyone else here gets this point. 70% of GDP is dependent on this one fact: rising home values and borrowers’ ability to borrow it freely to spend.
Flat prices or high interest rates will break the cycle.
What could help: rising wages. This would be possible if we erected trade barriers with low-wage Asian exporters. That strategy would also cause massive inflation, as the low-cost goods they provide has caused deflation in goods.
The key for everyone in this country is to realize that even flat home prices will cause a recession, about 9 months – 18 months after the prices stop rising. It takes consumers 9 months to spend the equity loan, and 9 months for reduced spending to show up in less capital spending and lower stock prices.
By the end of 2007, the full-blown recession will be here.
Can another asset bubble save it? Globally, central banks are tightening and withdrawing liquidity. Even Japan, whichh had 0% interest for decades (I think) is raising interest rates. Even China is raising interest rates and bank reserve requirements to reduce inflation.
The gig is up. Prepare yourselves for a period of saving, possible job loss. Be frugal for the next few years. Then you can handle this recession with less pain.
