The Little Book of the Shrinking Dollar: What You Can Do to Protect Your Money Now

Chapter Three

Economic Reality Check

America’s Consumption Can’t Save It

Sorry to say this, but we have to face it: There’s no such thing as bringing the economy back to where it was.

We don’t mean to be Negative Nellies, but the years before the recession were fundamentally weak. Before the recession, according to Columbia University researcher Bruce Greenwald, the bottom 80 percent of Americans had been spending around 110 percent of their income.

As we concluded in the last chapter, without the help of mass delusion and collusion, such spending is simply not sustainable.

The collusion and delusion we enjoyed for a spell came from thinking that our homes were our great collateral—ever-expanding in value. We thought we could borrow against it until we died and that our children could maybe still turn a profit on the house.

Alan Greenspan and Ben Bernanke, as chairmen of the Fed, were head engineers in this great bubble experiment. Through low interest rates and nonregulation—not even using what regulatory tools they had, they enabled the banks to lend, lend, lend.

We know how it turned out. But what’s it look like ahead?

We’re at record low fixed mortgage rates: 3.91 percent. The rate has only dipped this low one other time in history! That spells unprecedented opportunity for the few that can afford to borrow or are in the bank’s good graces enough to refinance.

But we see little effect. We clocked out 2011 with the most dismal new home sales record in half a century. Old homes ...