“Can Buying a House Bankrupt You?”

While the battle between greed and fear rages in the markets another battle - for the hearts and minds of the public - is the one that will actually determine the outcome.

We opened up our laptop computer this morning and got a headline on the Compuserve homepage: "Can buying a house bankrupt you?"

A year ago, we would never have seen such a headline. Instead, then, the Internet was alive with stories of how much property was going up…why it would go up forever…and how the reader could buy a house with no money down. "No credit? No problem!" said the ads.

Now, the average lumpenhouseholder has come to see buying a house as a threat. If you're not careful, says the accompanying article, a house can turn into a "money pit."

Meanwhile, the whole world has its hopes pinned on Americans. The worldwide boom of the last 10 years had a single, primary progenitor - the American consumer. Thanks to his willingness to spend money he didn't have on things he didn't need…the whole world economy shifted into high gear. Miners in Western Australia dug ore out of the ground, using tractors built in Japan; then, they shipped the dirt to China on ships built in Korea.

The Chinese took the ore, heated it up, smelted it, rolled it, pressed it…and then put the pieces together to create finished products - which they sold to Americans on credit.

Everything seemed to work fine until prices of American houses began to soften. Suddenly, the U.S.-based consumer had nothing to consume with. He had no more equity to "take out" of his house. Instead, lenders were asking him to put it back in!

Already, stock markets all over the world have registered their alarm. While U.S. stocks are down 9%, those in Europe and Asia are down 12%...14% …or more. The Chinese stock market hit a high over 6,000 in October. Now, it's around 4,600, and it looks remarkably similar to the Nasdaq on its way down. If it continues to follow the Nasdaq path, it will settle under 2,000 sometime next year.

"The Thrifty American Becomes A Nightmare for Global Economy," says the New York Times.

"The very global interconnections that many thought might spare the United States now appear to be working in reverse: American consumers will pull back from their exuberant spending, cooling demand for goods worldwide, dragging down the global economy. This could in turn stifle foreign demand for American goods."

And so, the whole world turns its weary eyes to the American consumer. Will he or won't he? Can he or can he not?

The U.S. consumer, they note, is famously big hearted…and small brained. He has been willing to ruin himself in order to boost up the global economy…putting himself deeper and deeper into debt, so the Chinese can build factories and put peasants to work on assembly lines. But now, the poor American…the world's buyer of first and last resort…the selfless taker of all the world's junk, gadgets and gaudy luxuries…has reached the end of his rope. With no alternative left to him, he seems to be coming to his senses.

Bill Bonner
The Daily Reckoning Australia

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