Friday, August 18, 2006

The Unseen Bubble

All the media is now talking about the housing bubble. They've got it wrong, it's really not the big issue. But if you want to miss the forest because of the trees, you're about to become a victim.

I was listening to a radio ad yesterday, "Have bad credit, a bankruptcy coming up or a FICO score under 500 and need to refinance, call 1-800-***-loan." They were offering up to 1/2 million at 7.4 APR, with a real nice intro rate for 2 years.

Let's combine the two ideas and elaborate a little. Housing bubble, the homeowners ATM machine has bit the dust, no more free money from equity. So you have bad credit, no problem here's a 1/2 million dollar loan, sign on the bottom line. What we have is a Credit Bubble of monster proportions.

The bubble is starting to unwind. Ford is cutting back production 25%. Boeing is going to lay off 6,000 workers. GM did it all already. Housing bubble you say, it doesn't really matter if you have lost your job. It makes the Realtors statement ring so hollow, "The house interest is deductible from your taxable income." Subtract it from what, when you're unemployed.

See the post from last week Life is Becoming more Difficult

It seems as if credit consumption has kept the economy moving with the appearance of growth. It is this credit consumption that has to be paid for in the future.

The credit bubble is still growing, just go to your mail box and count the credit card applications. The housing bubble points directly at the Credit Bubble. If you can fog a mirror and can sign your name, you can have it NOW!

If people start tightening their belts, consumption will fall faster than it normally would. Unemployment will make it worse. The major gripe of people about to be laid off at Boeing, was, "I'm too old to find another job that pays this good." I didn't even touch on the loss of health insurance.

It's all downhill from heeeeeeeeeeeeeeerrrrrrreeeee. Set back and enjoy the ride, your neighbor's credit fling paid for it (using your retirement savings).

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