The Aftershock Economy

As the authors of Aftershock point out, home prices in the U.S. appreciated about 80% between 2001-2006. According to the Bureau of Labor statistics, wages increased just 2% over the same period.

Then in 2006, the housing market collapsed. Homeowners who had lived on the increasing paper profits of their homes over the previous decade faced sudden and surprising destitution. By 2008, with the seizure of the financial system in the U.S., the stock market collapsed in turn, and millions of people — mostly men — lost their jobs in a panic of corporate layoffs.

One after another the bubbles burst in a predictable sequence of spectacular implosions: starting with real estate and reverberating in tectonic waves through stock values, private debt, and discretionary spending.
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The collapse of the housing and stock markets forced consumers into a corner, clinging to their jobs and managing their personal debts by cutting back on discretionary spending. The Federal Reserve — fearing the worst — escaped the immediate catastrophe by printing money — $1.7 trillion in 2009 alone.

This sudden increase in the supply of money — and the inflationary pressure it portends — functions to decrease the overall value of the U.S. dollar, thus making it less attractive to foreign investors.

“One way to look at this is to think of the United States as a big mutual fund,” the authors write. “When our performance is good, foreign investors throw their money at us, but when performance is not so good, they throw less money at us. And when performance becomes bad enough, they are going to want to take their money and go home.

“Based on our analysis, we foresee foreign investors beginning to significantly lose confidence in their U.S. holdings sometime in 2010 to 2011, and increasing over time, with the likelihood of a mass exit by 2012 to 2014 becoming very high.”

The amount of debt held by investors, which include China and other countries as well as individuals and pension funds, will rise to an estimated $9.1 trillion this year from $7.5 trillion last year. When the dollar implodes, the U.S. government debt — now at a staggering $13 trillion and set to exceed GDP by 2012 — will surely be called-in by its owners.

--http://pajamasmedia.com/blog/the-aftershock-economy/

Wow. Just wow. When I started this blog, I thought there would be a collapse about 2022, thus the name of the blog, and then I started feeling like that was too pessimisstic, and my current projection is about 2029. But these guys think it could happen as early as 2012.