Most of the time you would probably think that a famine somewhere in the world is just that, no food. But think again, it could be caused by misallocation of resources.
It happened in Africa 20 years ago. People were raising cattle and a mans wealth was measured in cattle. This started a cattle boom. More and more cattle were being raised. Finally it got to a point to where the price of animal feed started to rise. Up it went. As it went up, people started to unload cattle. The price of cattle dropped to nothing. From there the cattle starved to death and then the owner found himself next in line. If you had money, you could still buy food. Through the rush to become wealthy they ended up bankrupt and literally starved to death as a penalty.
The housing boom doesn't really seem like a misallocation of resources, now does it? Builders are still building, there is a profit still to be had. They can undercut any homeowner in the market. What going to kill the market? The cost of money.
A builder is going to want about a 20% or better return on his money. If he starts to get squeezed and figures that he could end up with only 10% return. Thats too much risk especially if interest rates rise up to say 10%. The builder will put his money in the bank, the hell with construction. At this point, a lot of homeowners will stop feeding their mortgage. Then the death spiral starts.
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