The Next Bubble

The Next Bubble, The "Economic Stimulus" Bubbles
By John Shaw
01/24/08

Dear Patrick,
I happened to type in www.moneycentral.com to locate an article that I believe
was written by John Markam.  It was called "We're out of bubbles" In the search
box, a few articles appeared.  One, by Jim Jubak.
http://moneycentral.msn.com/content/P116257.asp
It was titled "Why there is no housing bubble" and dated 06/10/05, I would
guess we were about 85% to the "Top" of this bubble when this was written.
As I said, I was looking for "We are out of bubbles", I believe by John Markam.

The reason I say this, is I believe there is one last "Bubble" forming, it is
called the "Economic Stimulus" bubble.  We supposedly have had a recent 5%
unemployment rate and a 3% growth rate, which most people would say is pretty
darn healthy.  Yet on Monday, 01/21/09, we have an "Emergency" Overnight Rate
Cut of 75 Basis points, to 3.5%, to "Stimulate" the economy.  We are also to be
receiving a Tax Rebate, which will apparently take about 6 months for the IRS
to send out.  I would theorize that it would be much more cost effective to
just have out employers take out "Zero" Federal Taxes, until the rebate levels
are achieved!!!

I never went to college, and was in a Vocational High School, and only had
"Shop Math" for my Drafting Class.  I have heard all the "Gloom and Doomers"
talk about how the "End is Near", and snickered.  Then in 2003, being 43 years
old, and rebounding off a Business Failure, I moved from Arizona, back to my
former Massachusetts hometown.  I have been earning a median household income
of  $50K on average, over the last 10 years.  Between 2003 and 2007, I kept
looking at the housing market, and asking myself, "How are people buying these
$350K houses that are supposedly middle class houses?" Since I had a rough idea
that a $125K loan, over 30 years, at 7% was roughly $900 per month, I assumed
that a home almost 3 times that, must be around $2700 per month plus tax and
maintenance.  For those 4 years, I was beating myself up, wondering what I was
doing wrong!!!  It turned out that it wasn't me after all.

What I find disturbing, is that my math told me there was "NO WAY I COULD
AFFORD THE HOME I WANTED" as it would have consumed approximately 3 out of 4
monthly paychecks!!!  Then I started reading about a "Housing Bubble" around
the summer of 2007. I was somewhat redeemed, as it wasn't what I was doing
wrong, it was what most of the rest of my generation was doing wrong.  So, I
became fascinated with how this was going to "Play Out".  I started typing in
"Housing Bubbles" in Search Engines, getting information from many different
sources.

The question continued to circulate in my mind, I Knew I couldn't afford a Home
(located where the rest of my middle class generation was buying), how are
these "I can't save a dime to save my life" people buying these houses?  A
month later, I started hearing about Alt-A and Subprime loans that were
starting to become due.  Ah, so this is how these guys were doing it, by
gambling...  Now, not to be a Conspiracy Theorist, I asked myself, "How could
all these people writing and backing these loans not see what was Very, Very
obvious to me?" I tend to conclude that the rich didn't get there by accident,
they are obviously Frugal and Intelligent people, who I am quite sure have a
good idea where their money is going.  I am Not buying the, "Even the rich get
fooled" theory.  Not with something this massive, Billions and Possibly
Trillions of Dollars!!! So I continue to study this gigantic Debt Monster.

Now, I begin to become very, very annoyed.  Originally, I thought it was just a
"Local Bubble", living north of Boston, MA.  This was what I was originally
hearing.  That then quickly turned into a Country Wide bubble.  *No Pun
Intended (CFC) I started thinking that I am now "Priced Out" of the housing
market in this country.  I am originally from England, and started looking at
what the Incomes were in the UK and then the cost of housing there, thinking
that since I am never going to be able to afford the American Dream, maybe I
will move back to the UK.  I am now getting confused even further.  They are
experiencing the exact same thing as in the US.  I decide to type in "Global
Housing Bubble".  That was a Huge Mistake!!!  Not so much a mistake, but not
good for the Blood Pressure, as this enraged me.  Now I am learning this
"Housing Bubble" that doesn't exist, is GLOBALLY!!!  Now, this is not to be
confused with the "Subprime Crisis" yet.  These were "Artificially" inflated
house prices around the Modern Nations of the World!!!  Then the "Subprime"
news was becoming a daily item, as I chose for it to be that way.

You see, I have been sitting on the sidelines for 4 - 5 years now, having been
"Priced Out" of the market.  I hate the idea of renting, as I have been told
for many years that it is just throwing my money away.  I didn't have much of a
choice, and at the same time couldn't save much either, due to rent prices!!!
So at 47 years old, I continue to rent.  I continue to read, get angry,
recover, and read some more.  Waiting for the houses to come crashing down.  I
get further annoyed when I read about "How to create a Soft Landing".  I feel,
due to the Disgusting Lending / Borrowing practices, that in fairness to the
Responsible Borrowers, the prices need to come down another 40 - 50 %.  I am
priced out, and now the Geniuses of the Political and Financial entities don't
want prices to come crashing down!!!!  I find this Maddening and have started
to lose Hope in ever owning a Home in a Middle Class Neighborhood.  I guess
that is what I get for being Responsible in My Borrowing Practices.  I am far
from finished, as far as getting to the bottom of what is Really going on.  I
see an "Economic Stimulus" Bubble forming.

My description of this Bubble is this:

1) Keep lowering interest rates, driving up inflation beyond the so called 4.1%
inflation rate of 2007.
*I personally believe it to be around 8% per year, for the last 10 years or so.

2) Cut Taxes, but continue to spend, will put more pressure on Devaluating and
hence, Crashing the Dollar.

3) Keep housing at prices at levels that are still too high, even after they
have dropped 20 - 30 %.

4) The stock markets in The Developed, Sophisticated Markets, will start to
crumble.

5) We will be experiencing Hyper-Inflation soon, within 1 year, followed by
Hyper-Deflation once people have been beaten into submission in regards to
their spending habits.

I am getting signs that this is a Deliberate act of Crashing the Dollar,
Crashing the House Prices, Crashing the prices on most everything we produce in
this country, in order to bring the dollar in line with the Chinese currancy
and other Emerging Markets around the World.  Since we cannot, without being
unrealistic, compete with workers making a product compareable to ours, either
the asain workers pay needs to go up, or our pay needs to drop to more
competative levels.  We will then be told that our hourly pay/salary needs to
be cut, or maybe just an emergence of a whole new currency, (As it will be less
painful in the working publics eyes), than cutting everyones pay.  Sort of
going back 30 years, is what I am seeing.  Then once currencies of the world
are on a Level Playing field, all countrys markets will return to stability.
In the meantime, Hang on for a Wild Ride coming, that is what this is pointing
to.

Sincerely,
John S.
P.S. Please email me with your thoughts on this theory, I am open minded.