Far be it from me to question someone as smart as Greenspan, but I would think that things such as the price of oil, the continued growth of China, and the stability (or lack thereof) in the Middle East would have far greater impact on the world economy than the real estate market correction in America.
These are indeed negative factors beginning to brew the perfect storm of a major global recession. And if things do heat up to true regional war in the ME vs. just proxy we may see a total collapse of the financial system. This would be restored within months, but the economy will take years to recover.
If Hillary gets elected, expect a black Tuesday event as she will raise the capitol gains tax and Wall St. will have a massive selloff before a 30% or normal capitol gains rate of 40% goes into effect.
Don’t expect it to be ‘the sky is falling’ from the mainstream media or financial experts in 2008. A lot of stimulus, including a bailout of homeowners will occur. This always happens in struggling sector or another but this time the bailout will be big. However, it is still but a band-aid. The damage done is on a global scale. Greenspan is correct, much of the previous economic growth came from home values and collateral from banks based on such values. It’s a TRILLION dollar problem and we have just begun scratching the surface. Those at the top made billions going in and are making billions exiting.
Google Netbank. See the first real innocent casualties of this debacle. If you had $5M in Netbank, you would have just had $2M of your hard earned wealth instantly erased. I would go postal and this is just the beginning.
What to do: Stop spending money on a rich lifestyle. Cut up the credit cards and pay down the debts. Save money in banks but spread them out to what the Fed insures up to $100k. I have killed much vacation planning, lowered the Christmas budget to $700 for a family of four (usually spend $2k). If you have a decent job, now is not the time to go exploring the next bigger and better thing. Refinance at a new lower rate but don’t take the cash out for remodeling. Cut corners everywhere. I like to think of the story in the bible of Joseph who was abused by his brothers and sold into slavery to Egypt. He became the second in charge of the known world in the empire of Egypt.
He was given a dream to store up seven years of grain during tremendous produce years for a seven year famine. We are two years away from the seven year famine.