Safe as Houses

This opinion piece written by Paul Krugman in the New York Times describes the problem nicely in layman's terms.

Some choice quotes:

"I used to live next door to a Russian émigré. One day he asked me to explain something that puzzled him about his new country. "This place seems very rich," he said, "but I never see anyone making anything. How does the country earn its money?""

"The answer, these days, is that we make a living by selling each other houses."

"So it's an economy driven by real estate. What's wrong with that?"

"...there's the disturbing point that we're paying for the housing boom (and the military buildup and tax cuts) with money borrowed from foreigners."

"...a fuller answer to my former neighbor would be that these days, Americans make a living selling each other houses, paid for with money borrowed from the Chinese. Somehow, that doesn't seem like a sustainable lifestyle."

"How solid, then, is America's economic recovery? The British have a phrase that applies: "safe as houses." Our economy is as safe as houses. Unfortunately, given current prices and our dependence on foreign lenders, houses aren't safe at all."