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Citing "economic and financial imbalances," he said America's growth depends "entirely on the continuation of the frenetic housing bubble."
However, "all bubbles end painfully, housing (ones) in particular. They're an especially dangerous asset bubble because of their extraordinary debt intensity."
They cause great harm by extracting wealth (through refinancing) from rising valuations and by "heavily entangl(ing) banks and the whole financial system as lenders."
Thus, property bubbles have historically been the main cause of major financial crises, notably Depressions.
Late 1980s Japan was a striking example. Its stock and property bubbles burst together, but the former got most attention. The "property deflation continued for 13 years (with) calamitous effects on (its) banking system through a horrendous legacy of bad loans."
Japan's "building sector" also suffered and "never recovered from the depression following its (late 1980s) excesses."
Richebacher wondered if America faces the same fate, asking, "Is the US economy in better or worse shape today (in 2004) than in 2000 (as it faced recession)? Is it in a self-sustaining recovery?"
Absolutely not, and he was right, saying "it is in dramatically worse shape" because of years of binge borrowing.
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