Steven Roach, the chief economist at Morgan Stanley, thinks your house costs too much. Way too much.
In a piece in Forbes that a reader kindly brought to my attention ("World on Brink of Ruin" -- catchy title, eh wot?) this expert blames Alan Greenspan for bringing the Unites States to the edge of the economic cliff, and draws specific attention to "the biggest bubble of all: residential property." Of course, this is a bubble unlike most others: The Dutch didn't really need tulips, but people do need a roof overhead. Still, one can't excape a few anxious shivers when experts sound apocalyptic warnings parlously close to those heard from down-at-heels bloggers and usenet ranters.
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While the hazards are well perceived -- at some point foreign lenders will cut (or will be obliged by the market to cut) their losses and cease financing the national debt and trade deficit -- no one really knows what the consequences will be.
If what's happened in other countries is any guide, nothing short of owning foreign currency or gold will offer any protection. Even for the better off (I mean all but the very wealthy, who can afford a very broad diversification), it's a difficult step; investors who bought precious metals and foreign currency in the late 70s and early 80s, at a time of economic upheaval, did very poorly over the succeeding 30 years.
Of course, U.S. debt (both public and private) at that time didn't approach current levels, and we were still a lender nation. On the other hand, countries which in the past have gone down the tubes (Argentina being the most recent case) over reckless or stupid fiscal policy were not bound, as the U.S. is, in a death grip with other major economies. Once we stop buying, Asia and Europe are in trouble.
In a word, nobody really knows whether it will end with a bang, or just gradual erosion of the U.S. standard of living, as the dollar slips another 10 cents every 3 months, and at some point foreign lenders demand significantly higher interest rates to finance our delusions of grandeur.
Whether it's this year, next, or 5 years from now..... Place your bets, it's anybody's guess.
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