Dear Mr.Nicola. I am so sick of ever rising housing prices and city bonus and stock market indexes that I wish I could see the housing market sinking like the Titanic and bring all that bunch of arrogant super rich and frivolouse people to the deeps part of the planet but, you know, I think that you are right.

Fabio C, London, UK

Just because the denouement has been a long time coming doesn't mean it will not happen. We are sitting at the eak of a completely unprecedented debt mountain topped off with a derivatives nightmare that few people properly understand.

Financial derivatives, a kind of black box financial magic beloved by quaants who understand equations but not financial history - have grown from almost nothing to over $500 trillion, that's ten times world GDP, in the last decade.

This is the financial leverage in the system that can magnify the possible $200 billion in subprime losses up to 100 times to say $20 trillion that will reverberate around the world in the coming year and roil the property markets in the Anglosphere. The US is first on the firing line, the Uk is right behind. Canada, Australia and NZ will be affected to some degree.

Hold onto your gold, the only asset that is nobody's liability!

oldasiahand, Guildford, UK

When any asset reaches a point where the price is so high that the number of willing buyers cannot soak up the supply then prices will reverse. Of course what we are talking about here is houses - homes in fact - one of the most important purchases for most people. The administrations in both the USA and in Britain have presided over this escalation in prices because it has been driving the economy;- House prices rise, people use the increased value like a piggy bank - so sales of other items like expensive motor cars and many luxury items increase. The governments' tax take' goes up, in this contry it has been used to fund many crazy inititives - wasting huge amounts of money on ill thought out schemes, social engineering and means tested benefits that sometimes cost far more to administrate than the benefit paid. This madness cannot go on for ever - when it stops will be when house prices fall significantly, leaving many people exposed and ulitimately unemployed....... DEPRESSION

Diddly Do, Liverpool,

Hopefully this 'housing market readjustment' does take place and with full vigor, it is about time the greedy of society that treat houses as a quick form of wealth gain got some of their own medicine.

This over all will do society as a whole some good and maybe give them reality check, at least for a short while anyway!.

The situation with housing is at the moment totally immoral.

harlett brown, Surrey, England

Harry, are the 'greedy of society' people who simply live in & own their own house? Your not interested in the good of society, just buying a house yourself...! If you were to profit from repossessions whose the greedy one? With stamp duty, solicitor, surveyor & estate agency fees, which all increase with house price rises rises. It could be argued that housing price rises play an important part in the economy and society.

billy, london, london

What is the point of talking up doom and gloom. There economy adjusts all the time. What Robert Schiller seems to have omitted is the huge shortage of housing in the uk, UNLIKE the US and Canada. Serious numbers of people will have to lose their jobs in the UK to see falls in the estate agents windows, the economy is growing reasonably - despite a projected percentage point on business borrowing due to the credit crunch experience. The BoE has interest rates to play with should the economy slow, but it won't use them until it has to - this is fact, and will inevitably be a factor in cooling housing prices - now boosted with slightly increased costs in borrowing money as a result of the market turmoil. Hardly doom and gloom, hardly greedy society getting its fingers burned but managed modern economics!!!!

Rob D, Bracknell, UK

Jeffrey Bryant, Oxford: you dramatically misunderstand the economics that underpins macroeconomic markets like housing. "Supply and demand" in these markets is not based upon whether or how many people want a house nor how much they earn nor how much they are prepared to pay. It is heavily skewed by speculation and primarily by how much banks are willing to lend. People may be prepared to PAY "x" amount for a house; but if, say, a credit crunch arrives, they may well find that banks are unwilling to lend them the same multiples as before, and so they can't any longer borrow "x" amount. Incomes don't need to go down or jobs be lost for a housing crash to occur: the only thing needed is for banks to stop lending the same amounts as before. This is what happened in the US -- and this is what is starting to happen here. In relation to house prices, supply and demand are functions of sentiment and credit availability, NOT primarily of population size or of incomes.

Isabel, London,

It's about time the housing market 'readjusted itself' and about time the greedy of society got their fingers badly burned.

Second to that it will actually do society a lot of good and bring reality back a little to what has to be said is the greatest farse on earth.

harry simmonds, london, united kingdom

Where is Gordon? The greatest chancellor in history and he is missing in action - again.

Christopher Holland, Canberra, Australia

People have already shown they are prepared to pay 'x' amount for a house. Unless people lose their jobs, there will still be the same number of people prepared to pay 'x' amount for a house. Thus unless interest rates go up, house prices for the ordinary people (forget the million pound houses) will remain the same. There will still be the same supply and demand.

Jeffrey Bryant, Oxford,

This is going to be different from the Great Depression, and probably will hit the poor the hardest - as always. But this time the great market movers have had the sense to plough wealth created through this, what is really false accounting (borrowing money that doesn't exist is false), and can plough and sow it for their own future survival if they can learn how to do that or employ someone who has been trained and knows how to do it. This manufacturing free zone, this etherial economy, will have to change dramatically. Simply, we can no longer sell to anyone who doesn't have the cash to pay with.

Sue Doughty, Reading, UK

At long, long last, Gordon Broone's pigeons are coming home to roost. His economic miracle will be seen for what it is: An illusion built on sand. Hopefully this recession will weed out the inefficient businesses and those who lend irresponsibly. Sadly, the price will be paid by the UK tax payer.

Perhaps we'll even see a correction in house prices. Over the long term, high house prices benefit only Banks, Estate Agents, and the Tax Man. A correction would be healthy. The older folks have benefitted from a transfer of wealth from the younger folks. A large scale house price correction would reverse this modern trend. This would be a double-whammy for the older folks, who have no pension to rely on.

The silver lining is that, in a few years time, young folks will be able to raise families in their own home without using all their disposable income to feed their horrendous mortgage.

NickT, Aldershot, Hants,

I'll say one more thing on this subject.

For sure, if there is a global recession created by a
recessional US economy............................................

The recession in this country will FAR WORSE than what
will happen anywhere else......... ( Why you say ? ).

Because w've created a whole economy based on equity. Nearly all of the growth that pushed us up the wealth
leagues has come mainly fron one sector. Absolute
FACT, study the wealth charts.

I>O>W..... we don't have anyother way's of wealth creation
to fall back on.

M walker, worcs, worcs

See economics like that game, pass the parcel......................

will someone be left with nothing all will the game master
just invent another parcel.

Its quite a big parcel now but its not beyond the US to find
more money for the pointless.

One day there will be a 30's style recession, I don't believe
we're quite there yet.

M walker, worcs, worcs

I've been hearing this doom and gloom for the past 5 years.

Paul Nicola, London, Highgate

I've been hearing this doom and gloom for the past 5 years.

Paul Nicola, London,

My hope is that there will be no bail out other than additional liquidity being made available at ever increasingly penal rates for those institutions involved in the suprime fiasco.

AS Robert Shiller has consistently pointed out they have fuelled, for their own benefit and enrichment, a huge asset bubble.
A public now more concerned with greed than social equality have been equally happy to participate. Has that created a better more just society ? For the answer look at the advert adjacent to this comment box . "Asset Rich?" leading into a guide to how those who are in this position might deal with Inheritance Tax.

Predictably when they are fortunate enough to profit from the inflating asset bubble,instead of being grateful and looking for ways to share that new found unearned wealth with those less fortunate they turn their minds to bleating about a tax on gains made almost exclusively from financial leverage and avarice

David Wallace, Glasgow, SCOTLAND

What is going on? This quote gives my big picture:

Contained “destruction” is what the Fed wants to see before short rates can be lowered.
(referencing various asset prices)
At
http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2007/IO+March+2007.htm

Ed Hamilton, Durango, CO USA