(This is Part 9 of a series. Go back to Part 8.)
What's happening in the U.S. housing market? A few signs: New-home sales nationally are down 20% from last year. Prices are down almost 10% from a year ago. Sales cancellations among big builders are up almost 40%. The hot spots of the last few years—Phoenix, Las Vegas, Texas, California, Florida, the Northeast—are showing clear signs of an emerging housing bust.
And yet home prices, as measured against such things as income or GDP, are still far above their historical norms, so much so that they have much farther to fall just to return to their historical mean. And as we've seen elsewhere, once an extreme is reached in something it tends not just to return to the mean but to go the opposite extreme.
If that were to happen to home prices, it would take home prices down 60% or more in real terms. Since the housing market is worth roughly three times the capitalization of the stock market, a decline of anywhere near that magnitude would plunge the country into a deep depression.
If housing were the only area showing signs of strain that would be one thing. But we've already seen that U.S. GDP is already in recession terriotry. And besides GDP and housing, such indicators as retail sales, industrial production and help-wanted advertising—the lowest in 45 years—are also showing signs of an emerging U.S. recession. But that's not the real issue.
The real issue is that the world's financial system is what's known as a
complex adaptive system, or CAS (which we've covered extensively elsewhere). One of the features of a CAS is that it exhibits nonlinear behavior, which means that a small change in one area can sometimes cause extremely large effects in the overall system, especially if areas of the system are near a boundary threshold.
We've seen in these articles that a number of aspects of the U.S. and global financial system are near such a "tipping point" and that the underlying reality is far more precarious than the placid-appearing surface. This is true in dimensions ranging from the huge global debt structure to the extreme housing bubble to the fragility of the dollar to the colossal derivatives structure to U.S. fiscal and trade deficits.
And as we've seen, all of these things (and others) are interconnected, related and at an extreme, so that a sudden crisis in one area could quickly set off crises in the others, like a string of falling dominoes. The analyst Thomas Homer-Dixon calls this synchronous failure, and it could easily happen to the U.S. and world financial system. Indeed, it seems to me highly likely, and sooner rather than later.
The times coming up will be, in my opinion, very challenging times. We've looked at why this might be so in the financial arena, although it will likely be challenging in other ways as well, such as ecologically, geopolitically and on a personal psychological level.
All of this will ultimately be constructive, because that's the way the world works. The near-extinction of life 250 million years ago paved the way for the riotous flowering of life that we see now. And so it will be with this crisis too; it will ultimately lead to a rebirth of what it means to be human on planet earth—though we'll likely have to pass through quite a valley inbetween.
All the more reason to become grounded now in one's spiritual life, so that even as strong winds blow one can sense the presence inside and act accordingly. And understand, not that "God will take care of my security," but something deeper—that the very embrace of whatever life brings opens us to something more profound, something not personal at all but nevertheless forever shining amidst the insecurity.
—jim sloman, 11.16.06
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