"The other day, a smart investor told me that he simply found Europe more interesting than the United States right now. Europe, he said, was dealing with something real. It was testing whether the Eurozone could survive, and whether economic crisis proves the need for more integration, or the impossibility of the monetary alliance. America, he said, was obsessed with problems of its own making. We have the capacity to do what is needed and we have the knowledge to know what is needed but we can't seem to simply muster the political will to do it. He's right."That may or may not be correct, but it is interesting, in either case.
The actual problem as we view it is that the world's wealth is badly distributed. Very small minorities (individuals, institutions, governments) control immense wealth while the mass of the earth's inhabitants have less than their fair share, even though they create much of that wealth through their work.
Where do the wealth minorities put their money? Well, they invest it. They put it in banks, currencies, in stocks and bonds, and in real estate, to take some of the major options. No matter how much wealth is present, people are constantly trying to increase their wealth -- but where does that increase come from? Who are the losers?
Let us take one of those investment objects -- real estate -- to see why the world has substantial financial problems.
As long as people buy residential houses ("homes") just for living there, prices remain sane and sensible. But when people, individually or as companies or banks begin putting their money into real estate as an investment, the prices of real estate are driven proportionately upwards as more and more money is invested. Residential housing becomes more and more expensive and prices no longer have any real connection to the utility of housing as a domicile. At some point, so much money has been invested in residential houses that people can increasingly no longer afford to buy them, or pay their mortgages on them -- that is the housing bubble -- and "poof", the bubble will burst.
Prices of residential houses in the United States and Europe are still overpriced in terms of their actual utility in the economic system. Frankly, people should not be allowed to speculate with housing. Rather, they should have to invest their money in the process of creating new products and services, as needed.
But as long as people are paying mortgages not only for the utility of having a roof over their head -- i.e. for the true value of their home -- but also to finance somebody's wealth, then things will be askew, as they are.
In America, that process has reached a critical stage. Either the process is reversed sensibly by society's institutions, or there is ultimately upheaval. That is one of the lessons of history.