"American Dream Ends In Property Market Crash"That's an actual...

"American Dream Ends In Property Market Crash"

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.