SO, WHAT'S HAPPENING WITH THAT HOUSING BUBBLE?

From ZNet, economist Mark Weisbrot on the ramifications of the recently burst housing bubble:

Economy Looks Bad for 2007

The timing of any downturn is not easy to predict. But a recession is likely, because of the enormity of the housing bubble and the impact of its collapse. Recall that our last recession (in 2001) was caused by the bursting of a stock market bubble of about $7 trillion. The housing bubble is comparable in size (about $5 trillion at peak) and the bubble wealth is much more widely distributed: most Americans still have most of their assets in housing and little or nothing in stocks.

As this housing wealth disappears, people cut spending. We have already seen an enormous drop in the amount that people borrow on their homes, from $600 billion last year to about $350 billion for 2006. It was this borrowing, enabled by soaring house prices that allowed people to borrow more against the value of their homes, that fuelled the U.S. economic recovery since 2001.

Housing construction and sales are also a big sector of the economy, currently about 6 percent of GDP. If that falls 30-40 percent, as it has in previous downturns, that's a drop of about 2 percent of GDP.

The recession caused by the stock market bubble bursting, which lasted only from March to November of 2001, would have been a lot worse if not for the enormous demand created by the housing bubble. So what will rescue the U.S. economy from the collapse of the housing bubble?

Click here for more.

The article talks about much more than the housing sector and its influence over the overall US economy, and it really adds to this sneaking suspicion I've had for the last few years that our economy is increasingly looking like a big huge pyramid scheme. Now I couldn't hang long in any real argument about this, but it just strikes me, what with outsourcing virtually all of our manufacturing overseas, our federal budget deficit being financed by foreign banks, the rapidly shrinking value of the dollar relative to other currencies, our negative savings rate, our outrageously high federal debt, not to mention our outrageously high consumer debt, mostly driven by credit cards, and a whole host of other problems, that the people who control big money in this country are just shifting it all around hoping to score big without actually creating anything of value. And like all pyramid schemes, it seems that the liklihood is high that the whole shebang is going to come crashing in on itself sooner or later. I mean, I know that there are lots of serious economic arguments for each of these areas I've mentioned as to why things aren't so bad.

But it sure does sound like we're pushing our luck, hardcore, in pretty much every aspect of the economy. Surely, there's some sort of danger, if only for that.

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