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Chapter 2: Phase I: The Bubblequake


Pop Go the Housing, Stock, Private Debt, and Spending Bubbles

close to their all-time highs, and consumer and commercial credit flowing like 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 multi-bubble 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:

  • The real estate bubble
  • The stock market bubble
  • The private debt bubble
  • The discretionary spending bubble
  • The dollar bubble
  • 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 four 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

Bubbles "R" Us: A Quick Review of America’s Bubble Economy

What is a bubble? This should be an easy question to answer but there is no academically accepted definition of a financial or economic bubble. For our purposes, we define a bubble as an asset value that temporarily booms and eventually bursts, based on changing investor psychology rather than underlying, fundamental economic drivers that are sustainable over time.

For the last several years, America’s multi-bubble economy has been growing because of six co-linked bubbles, some of which you may find easier to believe than others. These six bubbles are outlined below.

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