Aftershock: Protect Yourself and Profit In The Next Global Financial Meltdown, Second Edition

CHAPTER 2

Phase I: The Bubblequake

POP GO THE HOUSING, STOCK, PRIVATE DEBT, AND SPENDING BUBBLES

What in the world happened? There we were, with the Dow over 14,000, U.S. home prices close to their all-time highs, and consumer and commercial credit flowing as freely as honey on a hot summer day. Then, seemingly overnight, things weren’t so sweet. It may feel like the proverbial rug was randomly pulled out from under us, but in fact, we’ve been setting ourselves up for this multibubble fall over many years. Beginning with our decision in the early 1980s to run large government deficits, six co-linked bubbles have been growing bigger and bigger, each working to lift the others, all booming and supporting the U.S. economy:

1. The real estate bubble

2. The stock market bubble

3. The private debt bubble

4. The discretionary spending bubble

5. The dollar bubble

6. The government debt bubble

The first four of these bubbles began to burst in the Bubblequake that rocked the U.S. and world economies in late 2008 and 2009. Next, while most people think the worst is over, the coming Aftershock will bring down all six bubbles in the next two to five years. We know this is hard to believe, and we wish it weren’t true, but as you will see in this and the next chapter, all the evidence is right there, plain as day. You just need to know what to look for.