That's an actual headline. Of course it isn't a headline that appeared in an American newspaper. It appeared in a British newspaper - The Independent - on April 6.
The story presents the usual mix, part history of the US housing bubble and part "hard luck" stories about individual Americans who are now staring foreclosure in the face. The bulk of it, though, concentrates on the growing political reaction in the US, notably the fact that "civil rights organisations" are now demanding a six-month moratorium on foreclosures.
The article also makes the point, in passing, that the same situation is latent in Britain. And of course it is latent in Australia too, although you'd never know it from recent evidence in the housing markets. Here in Australia, we live in a relatively small but very well known resort town which is home to about 60,000 people. The lead up to the (four day) Easter weekend is one of the prime real estate selling periods of the year. There are two local papers, one published on Thursday and the other on Friday. In the Thursday paper this week there were two thick sections on real estate totalling well over 100 pages. The Friday paper only had one real estate section, but it was about twice as thick as usual. Yes, there was overlap, but not that much.
Now one might think that this is evidence of desperation on the part of home sellers, until one looked at the prices being asked. Australians, like their counterparts in Britain, have not awakened to what is happening in the US and WHY it is happening. They are tenaciously clinging to the notion that it can't happen to them.
House prices have already hit the skids in many parts of Australia and Britain. But once the housing slump hits the BIG time, as it inevitably will, the same hue and cry that is already being raised in US political circles will be heard loud and clear. Everything will be blamed for the housing debacle except its two major causes. The first cause being the manipulation of the Central Bank and their connivance with the commercial banks which made the money available for "borrowing" in the first place. The second cause being the gullibility (or avariciosness) of the people who didn't bother to LOOK at what they were signing when they took out no down payment loans at teaser interest rates.
The politicians, of course, blame the "risky exotic mortgages", never bothering to wonder about how the lenders managed to get the money to offer these mortgages in the first place. They also blame "predatory lending practices", never bothering to examine that same question. And of course, when times were "good" and real estate was booming, there wasn't a peep out of any of them about the lending or borrowing practices of the participants.
As many commentators who DO know how and why the US (and UK and Australian) housing bubble was blown up have pointed out - ten years ago, the lending which provided the fuel would have been impossible. The money simply wasn't there and nobody was going to borrow it into existence. What the mainstream doesn't want to acknowledge and are pulling out all stops to keep under the rug is the fact that the money IS borrowed into existence.
The reason why the real estate bubble - and the previous stock market bubble - was blown into existence was the simple fact that it became easier to borrow money into existence. The catalyst was, of course, the HUGE global lowering of interest rates in 2001-03. This was led by the US Fed and it didn't take very long at all for all the rest of the Central Banks to leap aboard the wagon. Lowered interest rates lowered perceived risk because servicing costs went down. With that came legions of people who could not have afforded loans before lining up at the counter to get their piece of the action. And with that came more lax lending standards.
That is how all "booms" in financial "assets" and market "bubbles" are engineered into place. It is the only way they CAN be engineered into place. Nobody, neither the perpetrators nor the recipients of their "largesse", complains while the boom is on. But listen to the wailing once the air leaks out!
The real reason why so many people are so enamoured with a financial system in which the money is issued through borrowing and there is nothing behind the money but the government's ability and willingness to tax future generations is that they buy the illusion that they are getting something for nothing. In Australia, for example, the government passed a law which "granted" the sum of $A 7000 - later doubled to $A 14000 - to anyone applying for a first home loan. That was the item which turned local real estate from a boom to a bubble market. Rates were low and the government would literally give you your down payment. Aussies flocked to buy houses. There is one born every minute, it's sad but true.
What we are witnessing now in the US, and what will soon overtake all the rest of the something for nothing crowd which has been living beyond their means through borrowing for years all over the world, is the politicians' and bankers' worst nightmare. It is a tapped out financial system, unable to create credit fast enough to perpetuate itself. The willingness to borrow is drying up at exactly the same time as the necessity to borrow new money into existence has never been higher.
Go back to the headline with which we began this piece. The "American Dream" is not ending with a property crash. The property crash is just the beginning. What we are seeing is the beginning of the end of the modern "American Dream", shared by people all over the world, that there is such a thing as something for nothing. The extent to which any indivdual has "bought into" that fable will be a good measure of the extent they will suffer as it all comes unstuck, as it is now starting to do.
Gold still sits quietly in the background, rising slowly but surely in $US terms and holding its own in terms of the other currencies while the financial system from which it has been excluded slowly but surely comes apart at the seams. Gold's great advantage is that it represents the best way we have ever found of exchanging something for SOMETHING. That old way of doing things, on which the REAL "American Dream" was built, is patiently waiting for its rebirth.
