The next crash will result in the dollar not being the world's reserve currency and this may cause just by itself a substantial drop in US standards of living This may also be the trigger for the next collapse.

What happens when the next bubble hit and it's closer then we think?
We are so far in debt there is no more lets just borrow some more and buy our way out, There is NO MORE, wages are declining, more then half all the newer created jobs are min. wage and part time, Americans savings at an all time low, there are still millions out of work not even being counted.
The next crash may be out last?!?!?!?

Austrians often suggest that it was only a credit bubble and ignore many other contributing factors. The government wants us to blame lenders and Wall Street and deregulation. And the conservatives (literally) want to blame borrowers, but the real problem starts with government policies, which included over lending but did not stop there.

Of course it was not “just” the debt bubble.

There are factors affecting the production of goods and factors that drain that wealth.

Government service, welfare, higher prices paid for X amount of corporate shares due to the premiums of hedge fund activities, etc. Any activity that enables one to obtain purchasing power without producing goods or services of useful value diminishes the ability of the economy to sustain itself.

Rather than call it a debt bubble. Let’s call it an artificially expanded production facility.

I like to call this “The Starbucks” syndrome.

In the period of artificial abundance, created by lending “Printed money” that was not “backed” by someone else’s foregone purchasing power; people experienced a level of affluence in which they were willing to purchase things they could otherwise do without. More Starbucks opened up. When the artificially expanded purchasing power contracted, that kind of purchase is the first to go. Back to; make it at home, take a thermos to work. Many Starbucks closed.

We are on the Oregon Coast. The first business to go in the nearby small town on #101 was the hardware store; a year later, the small supermarket. Then last year, the pharmacy and this year, up the road, the only gift shop and restaurant on a twenty mile stretch. The Bobcat equipment sales and rental up in Tillamook is also gone.

Top-end, view-home activity is a small fraction of what it was before. The two design/build projects we have been doing were financed by the owner’s savings, earnings and borrowing against equity in other properties as construction loans are almost non-existent.

Where does the financial energy come from to turn this around? It would seem to require a “Sea change” across the economic spectrum:

Eliminate most of the welfare state by putting idle hands to work, rolling back government services to only what was essential (and only one agency per need), reversing the tax policies that drives production off-shore, eliminate all formal exchanges that trade “Betting paper” not backed by a physical asset and more that aren't coming to mind at this late hour.

Follow that up with revising the whole concept of bank lending to have credit directed much more to financing means of production and without leveraging via fractionalization.

I don’t see it happening other than “Rising from the ashes.”

Got Gulch?

No this is not just a debt bubble, but bad economic policies that killed the growth in the economy. Talking about debt service, what about government service? The portion that Americans pay for government has increased enormously since 2000 and that started from an already high place The problem is the government, not the people.

The rarely pointed out factor in borderline qualifiers going under is maintenance.

People who have not been raised in or owned a home have little awareness of the chores and expenses that are not encountered as renters. The best example is when the furnace goes, the owner has no funds to replace it and walks away.

When one tallies up all the time and money needed from lawn mowing to routine repair cycles up to big sticker items it can readily be seen that basing an already flawed budget analysis on ability to pay without having a line item for anticipating those costs was foolish.

Nevertheless; the mortgage debacle was just one of the factors contributing to “The perfect (debt) storm.”

My observations, back in early 2009 were that the root cause of this actual depression was the policies of credit card lending.

"This recession was not caused by a credit crunch and it was not caused by the sub-prime crisis. The cause was that the economy was built on a debt bubble that expanded to a level of unsustainable debt service. The capability to produce goods and services expanded to the money supply allotted to it, but an economy that attains equilibrium on the advancement of purchasing power must inevitably contract when that advancement can no longer be maintained. . Defaulting mortgage debt was the proverbial last-straw-on-the-camel’s-back, the final load on this unsustainable debt.

Debt service now claims a substantial portion of overall purchasing power. The portion remaining to drive the economy is therefore now less than it would be even on a no-credit, spend-it-as-you-earn-it basis. The economy that has expanded to fulfill the demand of earnings-plus-advanced-payment, must contract to the demand of earnings-minus-cost-of-debt-service. What for decades was an economy built on, “Buy now, pay later,” has become, “Pay now, buy later!”

http://takeamericaforward.com/economy/st...

This was further exacerbated by their ability to contractually raise interest rate to astronomical amounts. No additional economic growth is created out of consumer’s spending money being sent elsewhere as interest payment unless that money results in its receivers spending into the domestic economy.

Joe six-pack’s cash flow being transferred to a buyer of a custom wooden speed boat built at Lake Lugano doesn’t cut it!

And if that doesn't work it results in elimination as it should. :)

It goes to cause. The banks wouldn't have offered TGTBT deals if they weren 't pushed by the govt. Also the banks assessed the risk, as you' ve said, to be mitigated. Regardless if other regulations had not been in place you would not have seen such a huge bubble. Investment would have had inumerous places to flow not just real estate. For instance look at the number of companies that went public 2007-08. Compare that to 2000. The money traveled to the easiest place.

I totally agree with this 100%. If the auto and bank industries were allowed to crash with no bailouts the economy would be much better off by now.

Exactly. Let if fail and let the market fill in the gap

The people getting the loan are foolish for buying into more than they can afford. If they fail to make the payments and lose the house, that is their fault. We called that a 'natural consequence' when we were raising our kids..

The problem as many have alluded to, is that there were regulations put in place that forced financial institutions to make loans based on more than just financial data... Race, socioeconomic status, location etc played in. Also, the standards for lending were GREATLY reduced which increased the number of so called 'predatory' (AKA high risk) loans.

And the foolish buyers paid whatever interest rate, fee, etc just to get in a house. The reality is, despite liberal policies trying to justify making sure everyone could own a home, NOT everyone should own a home. Some are simply not capable financially. Others do not need the increased responsibility that comes with property ownership and should stay renters, leasors, etc.

There should be no bailouts, period. :)

Agreed!!! EVER.

It's not a fool lending... it's a gov bail out institution. They can't fail.

You're comparing an individual's financial demise with a gov backed institution. The bank doesn't feel the loss like a person with a life to support, they get bailed out, with YOUR tax dollars.

There should be no bailouts, period.

That is where I agree. I have no problem with the bank losing money after the person who borrowed the money has lost everything.

Why can't some of the blame go to the home buyer...getting in over your head and believing something too good to be true isn't responsible purchasing.

the TBTF fool who lends it knowing it wouldn't be repaid and survives only on getting a bail out.