The US economy, in a nutshell?

90s: Hi-tech.

00s: Real estate.Check out this nugget from the Washington Post (emphasis added):

"Jackpot" is how Ileann Jimenez-Sepulveda describes it. Like Klein, she bought a house in Columbia Heights when the neighborhood was still known more for its crime and lack of amenities than for its gentrification. But the $300,000 house she and her husband bought four years ago was recently appraised at $850,000, and that equity has changed their lives.

They used their growing equity to buy another house three blocks away and renovate it to sell it. Then they bought a house in South America, and soon they’ll close on a large single-family home in the upscale Crestwood neighborhood off 16th Street NW. In the meantime, Jimenez-Sepulveda, who had worked in the high-tech industry, quit her job to join her husband in the real estate business; he’s a loan broker, she became an agent. Now they encourage their clients to use the equity in their homes to buy investment properties.

"It’s very easy, it’s very tangible for people to understand because they see their neighbors doing it -- taking the money out, buying something else, or investing in starting a restaurant," she said. "It’s exciting to see people recognizing it and running with it."

Jimenez-Sepulveda dismisses the analogy she sometimes hears likening this kind of leveraged real estate investing to the frenzied investing in technology stocks of the late 1990s. She argues that real estate assets are bound to increase in value over the years, even if it’s at a far slower rate than in the past few years.

Alas, in the background, some economists -- often those who have worked on emerging markets over the past decade --are still muttering dark thoughts. They worry that all this (paper?) real estate wealth ($4 trillion over the past four years) hinges on sustained inflows of financing from abroad: without those inflows, mortgage rates would be higher - and homes would be a lot harder to sell at current prices.

The funny thing is that the foreigners buying the securities that Americans are issuing to buy houses are not, generally speaking, making much money on their investment in the US. To quote from a forthcoming paper by Philip Lane and Gian Maria Melesi-Ferreti (no link yet, sorry):

Real dollar returns on foreign investment in the US have on average been negative over the past four years, and even more so when expressed in the currencies of most foreign investor countries.

But for the game to continue, the same foreign investors have to keep pouring more money in ...

UPDATE: Some economists are also muttering dark thoughts about the sustainability of China’s boom. I don’t agree with Xie’s policy conclusions, but I like his description of China’s economy:

China is an export and investment-driven model and the connection between exports and investment is basically that the state banking system takes the money earned by exports and puts it into investment regardless of returns ... That model is likely to last until the crisis.