Exciting?

You mean as in the old curse:

May you live in interesting times.

?

Something about eating our seed corn comes to mind.

We all bleed the same color.

From Wikipedia, on the causes of the Great Depression.

Debt

Macroeconomists, including the current chairman of the U.S. Federal Reserve Bank Ben Bernanke, have revived the debt-deflation view of the Great Depression originated by Arthur Cecil Pigou and Irving Fisher. In the 1920s, in the U.S. the widespread use of the home mortgage and credit purchases of automobiles and furniture boosted spending but created consumer debt. People who were deeply in debt when a price deflation occurred were in serious trouble--even if they kept their jobs--and risked default. They drastically cut current spending to keep up time payments, thus lowering demand for new products. Furthermore the debts grew, because prices and incomes fell 20-50%, but the debts remained at the same dollar amount. With future profits looking poor, capital investment slowed or completely ceased. In the face of bad loans and worsening future prospects, banks became more conservative in lending. They built up their capital reserves, which intensified the deflationary pressures. The vicious cycle developed and the downward spiral accelerated. This kind of self-aggravating process may have turned a 1930 recession into a 1933 depression.

As Bonddad says - have a nice day.

Housing/Land ("property") is productive Capital, and produces a stream of "Value" in the form of Property Rental which has a value in exchange.

The key market is that in property rentals, not property prices.

The property market will always be supported by the market in propery rentals, in the same way that the stock market will always have a floor consisting of the Net Present Value of the expected dividend income.

Provided that there are people out there wishing to live somewhere, the "clearing" market property rental will be related to their ability to pay.

The last UK property crash in the early 90's was a "hard landing" because a lot of people lost their jobs and were forced sellers.

That does not appear to be happening now. What is happening is a lot of speculative "buy to let" and many investors nursing continuing losses since market rentals are less than their financing costs. But most appear to be gritting their teeth and hanging in there waiting for earnings (and hence the ability to afford higher rentals) to catch up.

It appears that maybe in the US there will be something of a clear-out of speculators, but the key question for me is what is happening to the market in property rentals in the US?

Having said all that, it is of course the case that the great majority of new money in circulation comes into existence as "deficit-based" but "asset-backed" mortgage loans by credit institutions, and if that source of money dries up, the prospects for a US recession look grim - that could lead to a "hard landing".

"The future is already here -- it's just not very evenly distributed" William Gibson

The borrom two are the same as the top one (GDP growth minus a component of debt, left is US, right is eurozone).

Europe's grwoth thus also has quite a strong debt component. Whether it's "good" debt or not (as per Colman above) is hard to tell, but it's clearly there.

In the long run, we're all dead. John Maynard Keynes

If US housing crashes does this affect the US governemnt ability finance spending by loaning? Does it affect the US dollar?

From my non-economist point of view it seems that there should be a connection but I do not know how it looks...

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I live in one of the US's hot housing markets, or did until recently. The cost of homes shot up something like 25-30% in my area during 2005, but have probably declined 20% this year. However, even with the 20% decline, I calculate that there has been about a 9-10% annual average increase in prices over the past 10 years. I would guess that the slow rise in fixed mortgage interest rates (which are still very low in comparison to historic rates) are not the cause of the decline but rather (1) the rapid rise in prices over the past couple of years; (2) continuing discussion in the news and elsewhere that the top of the market had been reached and was likely to be followed by a slow down and decline in prices.  The word now is that there is no real reason for a housing crash other than that potential buyers are sitting on the sidelines waiting for the market to bottom out.  This may sound like a simplistic explanation, but I'll bet it's closer to the truth than all the charts combined. (Or at the very least, I hope it is!) Yes, there will be some hurting puppys among those who bought at the top for speculative reasons. Especially those who used "creative" financing to obtain below market interest rates.

I can swear there ain't no heaven but I pray there ain't no hell. _ Blood Sweat & Tears