* MIKE WHITNEY: Pop Goes the Bubble! *


Richard Moore

Original source URL:

August 30, 2006
Pop Goes the Bubble!
The Great Housing Crash of '07

This month's figures prove that the so-called "housing bubble" is not only real,
but that its cratering faster than anyone had realized. As the UK Guardian 
reported just yesterday, "the orderly housing slowdown predicted by the Federal 
Reserve will (soon) become a full-blown crash".

All the indicators are now pointing in the wrong direction. Consumer confidence 
is down, inventory is at a 10 year high, and the number of homes sold in July 
was 22% lower than last year. As Paul Ashworth, chief economist at Capital 
Economics said, "Things seem to be getting worse very quickly. Freefall is a 
strong word, but I think it's the right one to use here." (UK Guardian)

The housing bubble is a $10 trillion equity balloon that will explode sometime 
in 2007 when more than $1 trillion in no-interest, no down payment, 
adjustable-rate mortgages (ARMs) reset; setting the stage for massive home 
devaluation, foreclosures and unemployment. ("By some estimates housing activity
has accounted for 40% of all the jobs created since 2001". Times Online) July's 
plunging sales are just the first sign of a major slowdown. The worst is yet to 

The blame for this rapidly-approaching meltdown lies entirely with the Federal 
Reserve, the privately-owned collection of 10 central banks who cooked up a way 
to shift wealth from one class to another through low interest rates.

Sound crazy?

Well, just as high interest rates cause the economy to slow down; low interest 
rates have the exact opposite effect by stimulating the economy through 
increased spending. It's all pretty clear-cut.

When the stock market nose-dived in 2000 the Fed lowered rates 17 times to an 
unbelievable 1% to keep the economy sputtering-along while the Bush 
administration dragged the country to war, gave away $450 billion a year in tax 
cuts, and awarded zillions in no bid contracts to their friends in big business.
All tolled, the Bush-handouts amounted to roughly $3 trillion dollars, the 
largest heist in history, and it was carried out under the nose of the snoozing 
American public.

At the same time, America's debts and deficits have continued to mushroom behind
the smokescreen of low interest rates.

Rather than face the recession which should have followed stock market crash, 
the Fed chose to increase the money supply (which doubled in the last 7 years) 
and lower the qualifications for getting mortgages. (I read recently that 90% of
first time home buyers not only lie on their mortgage applications, but that 50%
of them say that they earn TWICE as much as they really do. The applications are
not cross-checked with IRS statements) Now, tens of thousands of Americans live 
in $400,000 and $500,000 homes without a penny of equity in them and with loans 
that are timed to increase dramatically in 2007. (Many of the monthly payments 
will double)

So, how can we blame the Fed for the reckless and irresponsible behavior of the 
average homeowner?

Well, because they knew the effects of their "cheap money" policy every step of 
the way.

First of all, the Fed knew exactly where the money was going. Greenspan endorsed
the shabby new lending-regime which put hundreds of billions of dollars in the 
hands of people who never should have qualified for mortgages. They were set up 
to fail just like the victims in the stock market scam who kept dumping their 
life savings in the NASDAQ when PE's were shooting through the stratosphere.

Secondly, the Fed knew that wages had actually regressed (2.3%) since Bush took 
office, so they knew that the soaring value of real estate was entirely 
predicated on debt not real wealth. In other words, home values increased 
because of the availability of cheap money which inevitably creates a 
buying-frenzy. It had nothing to do with real demand or growth in wages.

And, thirdly, according to the Fed's own figures, "the total amount of 
residential housing wealth in the US just about doubled between 1999 and 2006"up
from $10.4 trillion to $20.4 trillion". Times Online.

UP $10 TRILLION IN 7 YEARS! That is the very definition of a humongous, 
economy-killing equity monster. In other words, the Fed knew the ACTUAL SIZE OF 
THE BUBBLE and chose to steer it towards the nearest iceberg without warning the

This is what Greenspan called "a little froth".

There is no real growth in the American economy. Figure it out. Last year 
Americans saved less than 0% of their net earnings while they borrowed a 
whopping $600 billion from their home equity to piss-away on a consumer 
spending-spree. Once home prices begin to retreat, that $600 billion will 
evaporate, real GDP will shrivel, and the economy will begin flat-lining. 
(Consumer spending is 70% of GDP)

The Federal Reserve's plan is so simple; we shouldn't dignify it by calling it a
conspiracy. It's merely a matter of hypnotizing the masses with low interest 
rates while trillions of dollars of real wealth is diverted to corporate 
big-wigs and American plutocrats.

It might not be rocket science, but it worked like a charm.

Now, the trap-door has been sprung; the country is dead-broke and all the levers
are in place for a police state. As the housing-balloon slowly limps towards 
earth, the new Halliburton detention centers are up and running, the National 
Guard is in Rummy's control, the Feds are able to listen-in on every phone call 
we make.

The noose is beginning to tighten.

New Orleans was just a dress rehearsal for the new world order; 300,000 million 
Americans reduced to grinding poverty while the economy explodes into sheets of 

Mike Whitney lives in Washington state. He can be reached at: 

Escaping the Matrix website     http://escapingthematrix.org/
cyberjournal website            http://cyberjournal.org
subscribe cyberjournal list     mailto:•••@••.•••
Posting archives                http://cyberjournal.org/show_archives/
  cyberjournal forum            http://cyberjournal-rkm.blogspot.com/
  Achieving real democracy      http://harmonization.blogspot.com/
  for readers of ETM            http://matrixreaders.blogspot.com/
  Community Empowerment http://empowermentinitiatives.blogspot.com/
  Blogger made easy             http://quaylargo.com/help/ezblogger.html