Few people believe it, because most folks don't heed warnings. Personally, I don't blame them, since there are many voices pointing in many directions. Former USSR President Gorbachev is reported as saying, "I have 100 economists and one of them is right, but I don't know who."

Only when the next recession occurs will some people pay attention to the real estate cycle story. But few will heed the really important lesson -- how to eliminate the business cycle. There are two causes and two remedies. The financial cause is the manipulation of money and the interest rate by the monetary authority. Does anyone else wonder if central banking could be replaced with free-market money and banking? What would happen? Predications?

The other, more important, cause is fiscal-sponsored real estate speculation. This market-hampering speculation is juiced by money expansion and by fiscal subsidy. Government public works pump up land values, and fuel speculative purchases. The remedy is to have landowners pay their way, by tapping land rent or land value for government revenue. Public goods generate land rent, so landowners would be paying back value received. That would take the subsidy out of landownership and calm the cycle.

During a real estate boom, owners are mesmerized by the idolatry of ever increasing land values. Rising land value is the great bail out, as banks and owners figure they can sell out at a profit. But the rapid rise of land values is unsustainable. The bubble does not quite pop -- it plateaus in some places and drops a bit in other locations. In places with many foreclosures, prices fall. Most sellers hold out for sales at previous prices, so the inventory of properties for sale gets large.

The deeper, and mostly unseen, problem of the real estate boom is the that the high cost of real estate, combined with higher interest rates, make further investment generally less profitable. For example, the construction of residential housing is in recession. As economic investment in capital goods falls, workers in those industries become unemployed, and their demand for goods falls, and the economy falls into a recession -- falling GDP. This has not quite happened YET, but the financial waterfall looms in 2008.

The last real estate recession was in 1990, and real estate has been on an 18-year cycle, with the next downturn scheduled for 18 years after 1990, thus 2008.

Free banking and land-value tapping would eliminate the real estate and business cycles. But intervention is so deeply rooted in the economy that federal money and real estate swings seem natural to most folks. But there is nothing natural or free-market about depressions. Recessions and depressions are caused by statist interventions that distort the economy.

Freddie Mac and Fannie Mae are themselves government-sponsored consolation prizes rather than free-market enterprises, and are ultimately part of the real estate problem rather than the cure.