How Deep Does This Bubble Cut?

One thing I've often wondered about is just how profound this housing bubble's effects will be. When this bubble bursts, what will happen to the US economy? What will happen to the world economy? Will we be able to effectively shrug it off, much like we did when the dot com bubble popped? Granted, there were a couple hard years, some layoffs, some start ups shutting down, but nothing on the magnitude of hard times this country has seen before.

Many argue that we rebounded from the dot com crash because of the boom in the housing sector, made possible in large part due to the Fed dumping money into the markets. But now the Fed is tightening up their money policy at the same time the housing market is beginning its decline.

One person who sees trouble when the housing bubble bursts is Roger Bootle, economic adviser to accountants Deloitte & Touche LLP and a former adviser to the U.K. Treasury, who wrote: "Like the earlier bubble in shares, the extent of overvaluation is different in different countries, but this is a global phenomenon. In the end, this bubble may be more serious than the primary bubble in shares. When it bursts, the world will tremble." (Source)

Not all people are so pessemistic. Edmund Seifried, professor of economics from Pennsylvania's Lafayette College had the following to say: "We can keep the economy moving and deflate this housing bubble, and not pop it, if interest rates stay low. ... Even if we have a slip-up in the economy, we still live in the best economy in the world. If we have a recession, your lifestyle will barely change a bit." (Source) That last line sounds a bit pompous - try telling that to the guy who just lost his job and now can't afford his overpriced, overfinanced home.