Part 3--The Collapse Of The Housing Bubble

06/05/2005 - -------------------- 24/03/2007 -------------------------------04/10/2008

The above actions of the Federal Reserve in the aftermath of dot com bubble and the 9/11 terrorist attacks allowed the US economy to avoid a severe economic slowdown

However, once the housing market bubble imploded the Federal reserve was unable to find another medium that would allow the economy to operate at its full potential because consumer and business confidence was so low, the levels of debt they were carrying are so great, and personal saving rates were minimal.

Today, consumers and business are more concerned with paying off debt instead of buying Channel hand bags and new equipment. Employment thus falls as does the use of existing capital stock.

As we continue to pay back the debt, the values of our houses collapse, our pension funds crumple, unemployment soars and the economy may become deflationary. This will result in debt becoming relatively greater and becoming even harder to repay resulting in even greater levels of savings.