What Greenspan says is impossible. There are more than SEVENTEEN MILLION HOMES SITTING EMPTY IN THE UNITED STATES RIGHT NOW. It's by far both the largest number of homes and the largest by percent in US history. Investors and owners of second homes haven't figured out what to do yet and so many of these homes aren't on the market. But they will be.

The problem is that built into the price of every house is the expectation of future appreciation. If I believe a house is going to decline in value, I might not buy it no matter what. If I think it will remain flat for a few years, I will be willing to pay one price. If I believe it will rise 5% a year, I will be willing to pay a higher purchase price. If I believe it will rise 10% a year, or more, I will, as a rational investor, be willing to pay whatever someone will lend to me to buy that house because with the leverage involved, there is simply no other investment that can do that.

Home prices simply can't appreciate at those levels again for decades. The reason is that there aren't sufficient people with sufficient income to drive the prices up that fast again. Most people from those making $500,000 a year down to $25,000 a year borrowed every last penny they could to buy as expensive a house as they could, and in many cases, as many houses as they could because they kept going up in value rapidly. There aren't any people left to buy houses -- at least not SEVENTEEN MILLION HOUSEHOLDS (which is more than 30 million people). Actually, there aren't enough people in the United States right now even to keep more houses from coming on the market because so many houses are empty right now.

A rational investor with an investment home, or vacation home is going to start looking at the likelihood of the home appreciating. If it isn't going to appreciate at the rate expected, and the investor comes to believe that will be the case for a long time, the incentives change. The house is no longer worth the same amount to the person who "owns" it and who is paying the cost of carrying it (mortgage, interest, taxes, insurance, upkeep, etc.) -- especially if it is empty.

The rate of home price appreciation for several years was so unusually high that many investors bought homes and simply left them empty. Renting the home out was unnecessary work because rental income was a trifle compared to the price appreciation. Why even bother! It's like an executive taking a second job as a counter clerk for the extra money. That's how totally crazy this market had gotten.

It's much like the "Super Conduit" nonsense. Powerful people forget that they don't control everything. You can't make people pay a premium for houses if they don't believe they will rise in value at a rate that justifies the purchase price. The only thing the Fed can do is flood the economy with cheap credit and hope some of it goes to housing. But it might not. Actually, I'd bet it won't. When Alan Greenspan did that in 2002-04, the money didn't go back into the NASDAQ (which is still down a bit from its 2000 high of 5,000). Instead, the money went right into real estate.

My quote to sum up this problem of throwing liquidity (freshly 'printed' cheap credit) on a bursting bubble: "A central banker can lead an investor to freshly printed fiat money, but he can't make him spend it on real estate."

Housing has got to go down, or the price of everything else has got to go up. No matter how desperate and misguided the American consumer has become, price inflation will be a lot worse than a real estate bust followed by a nasty recession. A real opening of the money floodgates means that everybody gets a big pay cut -- your $80,000 a year salary will now buy $50,000 worth of goods and then you can't figure out why everything seems so expensive? (hint: it's because the Fed is making cheap credit and flooding the market with it).

Regardless of how we come out of this, it's going to be very painful. But if it's through inflation, the United States will not likely not fully recover ever -- not without issuing a new currency, or completely reorganizing its entire financial system. The sort of dollar devaluation they appear to be considering is really no different than defaulting on debt and foreign investors will remember that for decades.

There's also the downright weird fact that the Fed and US Treasury appear to appreciate the need to restore the residential building and home sales market because housing is what drives the economy. Well, actually, it has never driven the economy until 2001 when it was used to keep the party going and avoid a post-dot-com-meltdown recession.

We are essentially going to experience the recession that we should have had in 2001/2 in 2008 only with about $6 trillion in additional debt in the economy and everybody tapped out so far that an unexpected parking ticket could ruin them.

I don't think they can get many investors to buy these over priced empty homes. Even if they get some sold what will happen as many more homeowners forclose because their equity has dropped so much they are upside down on their mortgage? I think the underlying problem is many people are afraid homes will go even lower so they are afraid to buy or hold onto the ones they have. This problem seems way too big to me to turn around anytime soon. If people stop believing in the "American Dream" then it opens up many cans of worms. Since housing and it's leverage is used to fuel the consumer, and that equity has been lowered or completely lost, it will effect all of our economy. Add to that rising oil prices and a dollar dropping and you have many people tapped out with inflation all around. This is a huge problem and will effect all sectors. I know they think oil will do just fine because of emerging China and India and it probably will. Yet those high oil prices and devalued dollars(imports) will really hurt US business and consumers. They will have to find ways to cut back. As companies and consumers cut back it will hurt the US economy. I don't even want to talk about what the national debt and trade deficits will do to us.