Notes Paul Krugman in the Times today:
"If housing prices actually started falling, we'd be looking at a very nasty scene, in which both construction and consumer spending would plunge, pushing the economy right back into recession."
THE HOUSING BUBBLE MIGHT BE THE LEAST OF OUR WORRIES IN A FEW YEARS.
The Bond Bubble is even more ominous because it threatens the very basis of the US Economy---MASSIVE DEBT!
Once the Bond Bubble breaks the rest is history.....Housing and Stocks and the Dollar will plunge.
Then, investors will move their money into the NEW HIGH YIELD DEBT INSTRUMENTS....BECAUSE OLD AND NEW DEBT WILL, IN EFFECT, BE ON SALE CHEAP.
We will surely see a return to Vietnam/Johnsonian Era interest rates....
CDs paying 10% to 18% could return....and as in the 1970's EVERYONE will be avoiding stocks and real estate to take advantage of the high rates.
AS TO KRUGMAN'S QUESTION: WHAT NEXT? THE ANSWER IS 1970's REDUX.
