CHAPTER 1

America’s Bubble Economy

UNDERSTANDING HOW WE PREDICTED THE BUBBLEQUAKE FOUR YEARS AGO IS KEY TO UNDERSTANDING WHY OUR LATEST PREDICTIONS ARE CORRECT

When our first book, America’s Bubble Economy, came out in 2006 (the book proposal was actually submitted 18 months earlier), we were right and almost everyone else was wrong. We don’t say this to brag. We say it because it’s important for understanding why you should bother to pay attention to us now.

America’s Bubble Economy (John Wiley & Sons, 2006), accurately predicted the popping of the real estate bubble, the collapse of the private debt bubble, the fall of the stock market bubble, the decline of consumer spending, and the widespread pain all this was about to inflict on the rest of our vulnerable, multibubble economy. We also predicted the eventual bursting of the dollar bubble and the government debt bubble, which are still to come. Of course, back in 2006, our predictions were largely ignored. Two years later, they started coming true: The housing, private debt, and stock bubbles fell dramatically, causing a financial crisis here and around the world.

How did we see it coming? Certainly not by looking only at current conditions, which, at the time we wrote the first book, still looked pretty darn good. In fact, real estate prices in 2006 were close to their record highs. And with home values high and credit flowing, American consumers were still happily tapping into their home equity and credit cards to buy all ...

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