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The Biggest Bubble of All: This One Has Yet to Deflate (Are You Ready?)

  • Written by Syndicated Publisher 41 Comments41 Comments Comments
    April 22, 2012

    History shows that once a financial bubble bursts, it can take a long time to bounce back.

    Recent history offers an example: Real estate prices topped in 2006-2007 — then came the worst part of the sub-prime mortgage crisis in 2008.

    Yet instead of recovering with the passage of time, real estate prices just keep getting worse:

    Home prices dropped for the fifth consecutive month in January, reaching their lowest point since the end of 2002.

    — CNNMoney, March 27

    As values sink and desperation grows, the number of owners giving their timeshares away for $1 — or less — has doubled in the past year, says Brian Rogers, of Timeshare Users Group, an owner advocacy group. “There’s never been a worst time to try to sell a timeshare,” he says.

    — SmartMoney, April 4

    Observers have called for a bottom numerous times in the five or so years since the bubble burst.

    Again, this is what can happen. Recovery can take far longer than many expect.

    Real estate is just one sector of the economy. Let’s consider another sector:

    According to Citigroup economist Steven Wieting health care is the next big bubble looming in the distance.

    And to make matters all the more worrisome, his analysis suggests it’s like nothing we’ve seen before.

    — CNBC.com, April 12

    Although health care is a huge part of the economy, it’s still just one sector. Let’s consider yet another sector:

    The amount Americans owe on student loans is far higher than earlier estimates…Total student debt outstanding appears to have surpassed $1 trillion late last year…That would be roughly 16% higher than an estimate earlier this year by the Federal Reserve Bank of New York.

    — Wall Street Journal online, March 22

    As big as each of the above sectors are, they are just a fraction of the bigger picture:

    …the property market, to me, was a microcosm…of what shape the whole world is in right now — in debt up to its ears and ultimately unable to pay. And that’s what crushed the real estate market and I think it’s going to crush…the entire debt market across the globe…Nobody’s worried…

    — Robert Prechter, Financial Sense Newshour interview, March 22

    Far from being worried, lenders are once again trying to push credit on risky clients:

    [A Brooklyn resident] just emerged from bankruptcy and doesn’t have a job, and her car was repossessed last year. Still, after spending her days job hunting, she returns to her apartment in Brooklyn where, in disbelief, she sorts through the piles of credit card and auto loan offers that have come in the mail.

    — New York Times, April 10

    As bubbles balloon in individual sectors of the economy, the psychology of the pre-financial crisis days have returned.

    That’s why it’s important to remember that hardly anyone was concerned about the real estate market in 2006. Then the whole house of cards fell in.

    Now consider the entire global debt market: the biggest bubble of all time.

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    This article was syndicated by Elliott Wave International and was originally published under the headline The Biggest Bubble of All: This One Has Yet to Deflate (Are You Ready?). EWI is the world’s largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

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