Part 3: "The mother of all bubbles ... real estate bubble & tax appraisals"

Financial Guest Post
By D. Sherman Okst

Let’s talk Ron Paul for a second.

Paul is a medical doctor, an OBGYN, and a Republican Congressman from Texas. Personally, I wish we had a few more like him. He is one guy on the hill who knows the economy. Here is what he says about cheap money, “It causes people to do stupid things.” (Video: see the 3:25 minute point.)

I don’t think he was talking so much about the investor who thought buying a good house for too much meant that he’d be able to sell it later for even more money. No, I think he was referring to the investment bankers who created what Warren Buffett calls "weapons of financial mass destruction."

What I am driving at here is this: To clear out a glut of inventory, and 24 million homes in the mother of all gluts, you need buyers.

And a lot of them.

The issue is going to be this: Since financial institutions aren’t creating the loans that created money for buyers who would have been better off renting, then who the heck is going to buy these homes? There aren’t going to be subprime borrowers, or buyers to assume debt from a whole periphery of other creative loans that are no longer being offered.

I mean, the last “positive” sign of qualified buyers I saw was a piece on a busload of Chinese millionaires looking for second homes. Most of them said they’d wait until prices fell more.

Compound this “little” detail with the fact that the economy is hurting people who were qualified buyers.

Housing prices won’t, in my estimation, round out for this “smooth” landing that the first chart indicates with its pretty little dashed line. What possible positive event would cause a smooth landing as the first chart indicates?

Previous: Part 1, Part 2
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D. Sherman Okst is an Augusta County resident who with his wife runs a small technology business. He reads extensively and studies the economy blogging as "Davos" at the Daily Digest, a column for Chris Martenson, which gets 1.5+ million reads a year. Sherman writes code, was a high school computer science teacher, and ex-airline captain with 15,000 hours and 18 years of service. He was a builder, managed a lumber yard and as a kid was a mate on a fishing boat. Sherman has also had work published in a few magazines.

Global stock and credit crash alert from Scotland....

Jittery markets worldwide led the Royal Bank of Scotland to warn clients of possible upcoming financial turmoil.

From telegraph.co.uk comes this alarming news:

The Royal Bank of Scotland has advised clients to brace for a full-fledged crash in global stock and credit markets over the next three months as inflation paralyses the major central banks.

"A very nasty period is soon to be upon us - be prepared," said Bob Janjuah, the bank's credit strategist. A report by the bank's research team warns that the S&P 500 index of Wall Street equities is likely to fall by more than 300 points to around 1050 by September as "all the chickens come home to roost" from the excesses of the global boom, with contagion spreading across Europe and emerging markets.

Glenn Beck was talking about this on Wednesday's show, and I also heard from a friend who is a financial wizard and keeps up with these things. Stay tuned....

Morgan Stanley warns of "catastrophic event"

From telegraph.co.uk comes further financial warnings:

The clash between the European Central Bank and the US Federal Reserve over monetary strategy is causing serious strains in the global financial system and could lead to a replay of Europe's exchange rate crisis in the 1990s, a team of bankers has warned.

"We see striking similarities between the transatlantic tensions that built up in the early 1990s and those that are accumulating again today. The outcome of the 1992 deadlock was a major currency crisis and a recession in Europe," said a report by Morgan Stanley's European experts.

Stay tuned....