Once upon a time in a village a man appeared and announced to the villagers that he would buy monkeys for $10 each.
The villagers knew that there were many monkeys in their forest. They left their farms on the plains and went into the forest to catch them. The man bought thousands at $10.
As the supply of monkeys started to diminish the villagers stopped looking. Finding and catching monkeys was soon no longer worth the effort for $10. They started to return to their farms to plant the spring crop.
The man then announced that he would buy monkeys for $20 each. This new higher price renewed the effort of the villagers and they headed back into the forest to find and catch monkeys again to sell.
When the monkey supply diminished even further that summer and the people started to return to their farms, worried they had not made enough money selling monkeys to buy all the food they needed but had not planted any crops yet either, the man raised the price he’d pay for monkeys to $25 each. The hunt was on again.
Soon the supply of monkeys became so small that a villager didn’t see a monkey in a day of hunting let alone catch one. Even at $25 each the effort was not profitable so the villagers finally headed back to their farms that fall. After nine month’s absence from their farms they knew the time had passed to produce enough food for the coming winter, but at least now they had enough money from selling monkeys to buy food to eat.
But the man wasn’t finished. He announced that he would buy monkeys for $50 each! The villagers became very excited. He also explained that he had to go to the city on business and that his assistant was to stay behind to buy monkeys on his behalf.
As soon as the man left the assistant told the villagers, “So you think you have made a lot of money selling monkeys, don’t you? But do you want to really get rich?”
“Yes, yes!” said the villagers.
The man’s assistant went on. “I have a gigantic, enormous cage filled with monkeys. I will sell them to you for only $35 each and when the man returns from the city you can sell them to him for $50 each and make a fat profit. You don’t even have to work to find monkeys at all. Then you can not only buy all the food you need for this winter you call all buy flat panel TVs, too.”
The villagers were thrilled. They collected all of their savings together and bought all the monkeys in the assistant’s cage then awaited the man’s return.
They never saw the man nor his assistant again. All the monkeys that were once in the woods were now in the village. All of the villager’s savings were gone.
Moral: Substitute housing for monkeys. As the winter of the US economy arrives, you still have the house you had before the price was bid up. Now that prices are falling back down, who has your savings?
Now you know how Wall Street works an asset bubble racket.