By Bill Bonner

Over $140 and climbing…playing hell with all sorts of investments…Bond vigilantes emerging from the land of nod…no country for old men with money…Letting the undertakers decide when you are ready to die… no such place as ‘nowhere’…and more!

One of the more difficult aspects of understanding economics is the fact that in many cases, it takes a long time for the full affect of these policies to work themselves through the economy. This then leads to the difficulty that people have in identifying the actual cause and effect of the policy that was originally introduced.

One of the more difficult aspects of understanding economics is the fact that in many cases, it takes a long time for the full affects of economic policies to work their way through the economy. Because of this fact, it can be difficult for people to identify cause and effect.

On Saturday, I attended a grand opening at a Lennar (LEN) site in the desirable locale of Jupiter, Florida. A very large development of several hundred acres was being shown to the public for the first time. Even Radio Disney was present (the kids brought the parents - good marketing ploy). A catered lunch was provided and the well-trained and readily accessible Lennar staff was both in the model home and in the blazing heat at high noon ready to pitch the homes to be built. I spoke with four different sales representatives to get a sense of the development's presence.

Six home plans were offered with four being 4000 square feet or larger. Pricing was from the mid-$300g's for the basic 3000 sq. ft. home up to $600's for the Ford-Excursion type 5300 square foot behemoth.

There is a secret concerning high foreclosure rates that investors have yet to grasp. It's all about turning lemons into lemonade, something American consumers do so well. Analysts project 1 in 33 homeowners will face foreclosure over the next two years. These foreclosures will free up an additional $4 billion a month in consumer spending. Maybe this wave of foreclosures isn't so bad after all. If you eliminate the average monthly house payment by the standard 6 month foreclosure process then you can count on a $40 billion foreclosure stimulus being added to the economy. Maybe we should stop fearing a consumer collapse and start looking at the numbers.

Annual core retail sales are up 10.2% over the last three months. This data shows that those consumers who are supposedly 'strapped' are willing to take off the chains. We live in an era where disposable income is king. Americans feel more urgency to pay down credit cards than to make payments on a home that is underwater. The fear of foreclosure is quickly replaced by the freedom of additional spending money. This newfound money will provide thousands of dollars a month to those consumers struggling to pay the extra $100 a month on gas. There are three things that you can always count on: death, taxes, and the resiliency of the American consumer.

Listening to debates about housing, oil and commodity prices is surreal. In the first 3 months of 2008 housing and medical costs represented 33% of personal consumption expenditures, or $3.3 trillion. Across the same three months sky high energy and food costs accounted for 18% of personal consumption expenditure, or $1.8 trillion. Housing and medical costs suffered massive and sustained inflation for years. Housing prices- the single largest cost facing American families- went nuts from 1996-2007.

Not only were there virtually no complaints, every imaginable policy action was taken to extend and increase run-away and unsustainable house price inflation. Speculators drove housing price inflation. Individuals bought more, larger and more expensive homes constantly. How? Why? They got larger and larger loans on easier and easier terms. Lenders could bundle and sell the home mortgages to speculators around the world. The resulting speculator driven asset inflation was celebrated as successful wealth building.

Q: When the percentage of households that own their home goes down, what goes up?

A: The percentage that rent.

This one ought to get TraderMark over at Fundmymutualfund.com all riled up. He has been over there pounding the table with his coined phrase "world of shortages" as an investment thesis for some time now. Then, Jeff Rubin over at CIBC World Markets comes out with a slideshow entitled "The Age of Scarcity." Hat tip to Paul Kedrosky, author of Infectious Greed who originally posted the link to the slideshow.

There are 31 slides in all, but I wanted to post up a select few of slides that really illustrate some macro themes we are seeing.

If you have a mortgage, carry credit cards and are considering a home equity loan to cope with soaring food and energy prices, you should be paying attention to what the Fed has to say.

If you are heavily invested in the stock, bond or real estate markets, the Fed's decision will directly have an impact on you over the months and coming years, no matter who gets into the White House. [Make sure you read the end of this article].

Before I say anything on the topic of government and non-profit programs that provide potential home buyers with down payments, discuss the default rates and the potentially positive or negative impact on the current housing crisis, let’s first review some quotes and graphics.

First the quotes.

You've all probably seen or heard about the recently released Harvard Housing study. Among other things, the report discusses the fact that the median wage-earner is unable to afford the median priced home and forecasts a drop in real estate prices to the 1999 level. The fact is that the study comes about one year too late for investors and consumers.

• Yahoo Finance
• http://www.jchs.harvard.edu/

An excerpt from my recent article, 'Lawrence Yun Continues to Mislead on Housing' summarizes some of my forecasts in the real estate market, first released in 2006: