I recently gave an unprompted tirade about bubbles creating pockets of fake economic activity with no “real” economic output or value creation tied to them, and how sometimes, the circulatory systems in those bubbles feed into themselves.

E.g. someone borrowing against their higher property value(s) to put a down payment on another property.

Leverage is the amplifier. And I don’t see many self-circulating capital flows. I expect contractions to be reasonable for this bubble, or more realistically industry stagflation.

https://www.youtube.com/watch?v=bq9EOLdTf0E

Here's the mechanism in simple terms:

When US manufacturing jobs moved to China in the 2000s, American workers saw their incomes drop dramatically - like a factory worker going from $30/hour at Ford to $12/hour at Walmart. Instead of accepting lower living standards, the system created an alternative solution through housing and credit.

As home prices rose rapidly (often 10-15% annually), workers could borrow against their home's appreciation through equity loans and refinancing. A worker whose house went from $150,000 to $300,000 could borrow $50,000 to maintain their lifestyle - buying trucks, boats, and continuing to consume as if their income hadn't dropped.

This created a win-win illusion: China got manufacturing jobs, US companies got higher profits from cheap labor, Americans got cheaper goods at stores like Walmart, and workers felt wealthy despite earning less. Nobody complained because everyone seemed to benefit in the short term.

The system worked as long as home prices kept rising, allowing people to keep borrowing against appreciation. But when housing prices stopped climbing around 2005, the illusion collapsed - workers were left with lower wages, massive debt, and no way to keep borrowing.

This mechanism essentially allowed America to maintain consumption by borrowing against future wealth rather than addressing the fundamental problem of job losses. The 2008 financial crisis was the inevitable result when this unsustainable system finally broke down.