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To: KeepItSimple who wrote (157713)	3/30/2002 5:27:57 PM
From: Tommaso	Read Replies (3) \| Respond to of 436258

I have not been able to grasp the real estate bubble and its implications yet. It's just too big to contemplate. It involves so many people and institutions that the political power is there just to vote themselves debt forgiveness. Forgive us our debts because we have the votes. Because I own my house free and clear and because I have no debt of any sort, whatever, I have this awful feeling that I am going to be a scapegoat. It's much the same as what happened in Japan, but citizens of this country won't behave the same as the Japanese have. What seems inevitable is inflation. Inded, this IS inflation. It just hasn't shown up yet as large increeases in energy and food prices. What happens as the CPI crreps up? At some point the Fed has to "fight inflation." How does the Fed fight inflation? It raises interest rates. What happens as interest rates rise? Mortgage payments on variable rate mortgages increase, and rates on new mortgages are higher, too. What happens as mrotgage rates increase? Some people can't make their payments and default. What happens as defaults increase? Lending institutions have to foreclose or renegotiate payments. What happens as they foreclose or renegotiate? They start to lose money. Some become shaky. Some collapse. What happens when they get shaky and collapse? The government has to take over government-guaranteed mortgages. I don't know what happens after this. It would appear that huge issues of fiat money are needed to stop the collapse of one bank after another. It would seem that at some point the rest of the world would quit supporting the dollar by exporting their capital to us to finance out enormous trade deficits. It would appear that the dollar would have to depreciate against all other currencies by at least 30%, meaning immediate 30% inflation of all imported goods. I think a very bad inflationary depression is in the cards for the United States. With declining earnings for stocks, a return to a perfectly normal P/E could imply a decline of over 60% from the present levels of US stock indices. I just hope that short selling and the owning of put options is not criminalized.