What causes this economic collapse... the difficulty for Americans to get money/credit. The consumption between 2000 and now was mostly paid by Home Equity Loans and Home Equity Lines of Credits. With such loans you can extract the "accumulated" wealth out of your real estate. When real estate goes up that works fine, but even though God doesn't make anymore land, real estate can also go down. 
So here is a story to understand the housing bubble and the crash of the US economy:
Example:
John Doe buys a home in Phoenix for $250 000 in 2003.
Because John is not the "saver" type, he has no downpayment and receives a teaser rate of 3%(thank you Ben Bernanke), that will be adjusted after 3 years.
Two years later in 2005 that same house is "worth" $350 000.
John Doe decides to take a home equity loan. He will extract $100 000, which he uses to buy a pool in the backyard, a boat for recreation, a vacation to Europe and a nice car, preferrably a Hummer.
John Doe now has a total loan amount of $250 000 + $100 000 = $350 000
John Doe learns the hard way that real estate can go down as well and the house is worth $175 000 in 2008. John is now paying of a $350 000 loan and the collateral is worth $175 000. John is a smart man and he let his home go into foreclosure. His credit score is negatively affected but that doesn't make a difference because he can't get a loan anyway because the lending standards have tightened. He has no money to spend and there are no jobs for him because nobody is buying anything. People can't get their hands on the "easy" money. They will have to save now...imagine that!
2008 will be a nice transition, the USA will start the transition from a spending/importer/printing economy to a saving/producer economy.
God works in mysterious ways. May we all live in interesting times...
So here is a story to understand the housing bubble and the crash of the US economy:Example:
John Doe buys a home in Phoenix for $250 000 in 2003.
Because John is not the "saver" type, he has no downpayment and receives a teaser rate of 3%(thank you Ben Bernanke), that will be adjusted after 3 years.
Two years later in 2005 that same house is "worth" $350 000.
John Doe decides to take a home equity loan. He will extract $100 000, which he uses to buy a pool in the backyard, a boat for recreation, a vacation to Europe and a nice car, preferrably a Hummer.
John Doe now has a total loan amount of $250 000 + $100 000 = $350 000
John Doe learns the hard way that real estate can go down as well and the house is worth $175 000 in 2008. John is now paying of a $350 000 loan and the collateral is worth $175 000. John is a smart man and he let his home go into foreclosure. His credit score is negatively affected but that doesn't make a difference because he can't get a loan anyway because the lending standards have tightened. He has no money to spend and there are no jobs for him because nobody is buying anything. People can't get their hands on the "easy" money. They will have to save now...imagine that! 2008 will be a nice transition, the USA will start the transition from a spending/importer/printing economy to a saving/producer economy.God works in mysterious ways. May we all live in interesting times...
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