[ninenot]

One reason that our "trade deficit" is higher is that we have a hell of a lot more money to spend than anyone else does.

Actually, it's because we have a hell of a lot more DEBT than anyone else.

What happens when (not if) the value of housing drops?

And it will: net after-tax earnings, CPI-adjusted, continue to decline.

[Jaysun]

Actually, it's because we have a hell of a lot more DEBT than anyone else. What happens when (not if) the value of housing drops? And it will: net after-tax earnings, CPI-adjusted, continue to decline.

It's true that we have more debt than anyone else, but you can also look at debt as an "investment".

Savings - Investment = Exports - Imports

I suppose that your point is that asset-based saving (housing) has come to be viewed as a substitute for the income-based impetus to consumer demand, which has resulted in a shortfall of domestic saving. Lacking in domestic saving, the US has had to import surplus saving from abroad and run massive current account and trade deficits to attract that capital. The obvious danger being that our assets turn out to be overvalued.

That idea has merit to be sure, and perhaps more than I'm capable of comprehending. I'm far from an economist or expert on these subjects. I don't worry about housing values as much as others do. I would see a drop in housing prices as a temporary correction for overpriced housing, but would then expect values to continue to climb. The housing market does not appear to be driven by expectation of rapid future price appreciation (people HAVE to live somewhere) and the supply is, theoretically, limited. Housing supplies haven't become limited - housing in certain places has. That helps to explain the seemingly absurd prices in some areas.