It’s time for an update on the real estate bubble, which I have been watching since 2003. About a year ago, I laid out a timeline for the real estate boom. Knowing real estate happens in 16-year cycles, I juxtaposed the last boom/bust cycle in the early 90’s onto this cycle. Here’s what I came up with:

1990 (2007): Prices take a serious plunge. One article claims that housing booms are a bad thing and we should hope prices stay low. Increasing mortgage rates are blamed for the bust. The word “recession” is mentioned. Gloom and doom.

That’s next year. How many times do you think you will hear the words “looming recession” next year? More than you want to, that’s for sure…

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With the economy increasingly looking like it will slow down materially in the last half of the year, there is a drum beat for the Federal Reserve to cut rates. But how likely is a rate cut this year? We take a very different look at inflation to see if there is any room for the Fed to give a boost to the economy. We look over our shoulder at Japan and the yen carry trade and ask a heretical question: does the Fed cutting rates make any difference?

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Even now, the ads on television, radio and the internet continue: "Is your credit bad? Don’t worry, we’ll provide the loan for the home of your dreams …" What those commercials should, but do not, add is: go through the small print with a toothcomb. Or else you, too, could be swept up in America’s subprime mortgage crisis.

Just as in Britain, homeownership is a traditional goal of American society. But as interest rates have climbed and the housing market has slumped, the number of what are politely called "delinquent" loans has soared. And as home repossessions grow, civil rights groups and presidential contenders alike are stepping into the row over the high risk, or subprime, mortgage market.

In the most sweeping call yet, a coalition of civil rights organisations have demanded a six-month moratorium on foreclosures. They want lenders - whose reckless and sometimes predatory policies are largely blamed for the crisis - to help victims refinance their mortgages, or face law suits.

"We know that there are safe and affordable loans that meet the needs of our communities," said Janet Murguia, the president of the National Council of La Raza, the biggest Hispanic civil rights group in the US, noting that minority groups were especially hard hit by the crisis. Lenders should "match families to the sustainable loans that they should have had in the first place", she added.

The subprime crisis has erupted over the past few months as borrowing rates have turned upwards while house prices have fallen steeply in many parts of the country. All sectors of the mortgage market have been affected but none more so than subprime loans, extended to borrowers with shaky credit histories.

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Dark clouds are converging over America’s economy. Here are three scenarios on how they could develop into a serious storm that could hit you.

Fishermen and sailors must be constantly on the lookout and prepared for changing weather. Smooth sailing can quickly turn into a fight to keep one’s head above water. Likewise, today’s breadwinners must be prepared for abrupt changes in the economy. Good times can quickly turn into recession; high-flying stock markets can crash; and as history clearly shows, all bubbles eventually pop. Often, fat years are followed by lean years.

As economist James J. Puplava has said, “Economic and financial conditions never remain constant. They are as seasonal as the weather. Forecasts change depending on the patterns that emerge” (Financial Sense Online, March 15, 2001).

Financial meteorologists and prognosticators identify two looming, yet self-induced storm fronts threatening America’s economy: deflation and inflation. However, like climatologists trying to predict the weather, many disagree as to which poses the most immediate danger. Further, some identify a third and even more powerful economic storm brewing.

Although the outcomes of these coming storms are predicted to be very different, their origins are similar.

Mounting Debt Levels

Like a downdraft of dense freezing air, virtually all levels of American society have become weighted down and pressured with debt. Personal, corporate, state and federal debt levels are all at or near record highs.

U.S. consumer credit debt hit an all-time high of $2.4 trillion last September, soaring 80 percent since 2000. Similarly, the amount of household and mortgage debt as a percentage of disposable income is at its worst level in over a quarter century. For the past two years, Americans on average spent everything they made and then some. During 2006, people spent 1 percent more than they earned. The only other time in history America’s savings rate was in negative territory for a full year was during the Great Depression.

In corporate America, debt has become so endemic that there are now more companies with “junk” credit ratings than with investment-grade ratings, says credit rating agency Standard and Poor’s.

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