It is the sensation that you get when you get older. It comes from parachuting out of a plane, Doug explains. For a very long time, you have the impression that you are just floating in air. And then, suddenly, you see the ground rushing up at you.

When you are a child, a week is a very long time. Now, a week goes by for us like a cross-town bus. We stand on the curb, reading the headlines in the Financial Times, and it goes by; we hardly notice.

Autumn weather has come to London. It is still warm, but the sky is clouded over and the leaves have turned yellow. What happened to spring and summer, we wonder? We can’t quite remember them.

Last night, we went to dinner at a small apartment with our two daughters, boyfriends, girlfriends, friends of the family, and people who seemed to walk in off the street. “Ai yi yi,” we said to ourselves. “They’re growing up so quickly. For a long time, they were children. We thought they’d be children forever. But now...a kind of ground rush has taken over...everything is happening so fast. ”

The two girls are not little girls anymore; they’re grown women. They’re adults, with grown-up manners and grown-up problems. We tried to remember them as they were when they were five or six. The memory must be there somewhere...but we couldn’t find it...we couldn’t quite remember what they were like. We now know them only as they are.

Why does this matter to Dear Readers? Well, we wonder if there isn’t a kind of ‘ground rush’ in the economy too. For a very long time, everything remains more or less the same – floating in air. Stocks rising gently. Credit flowing by like a jet stream. The dollar slipping down softly.

Then, when you begin to think that these comfy trends are permanent, suddenly, everything changes. All that ‘flation’ in the system explodes...prices soar...or collapse. Markets are hit – as though by people whose parachutes had failed to open. And then, you can’t quite recall what it was like before...you are dazed at first...and then the reality of ‘ground rush’ focuses your attention so vividly that you can’t think of anything else. You lose perspective. What it becomes is so much more important than what used to be.

Ben Bernanke opened up an auxiliary parachute on Tuesday. It lifted investors’ spirits. But will it really stop the fall? Will it greatly prolong this period of floating in air? We’ll have to wait to see.

But it appears to us that the direction of the economy...and the markets...remains the same.

“The decline in house prices stands to create future dislocations, like the credit crisis we have just seen,” said Yale economist Robert Shiller to the U.S. Senate’s joint economic committee.

Applications for building permits fell to a 12-year-low. They’re now at their lowest level since June 1995. And consumer prices actually fell last month – led by the price of gasoline. Government reports tell us that the inflation rate has gone down, from 2.2% to 2.1%.

As inflation eased off, it gave the Fed time to turn its forces from fighting inflation to fighting the other kind of “flation.”

Alan Greenspan, whom you all know by reputation, told the Financial Times this week that he thought house prices in the United States might fall by more than 10%. House prices more than doubled in the last 10 years. A 10% correction seems like a minor adjustment. But it would have grave consequences, says Shiller.

The Center for Responsible Lending predicts that foreclosures on subprime loans will lead to a total loss of $164 billion worth of home equity. Financial institutions are said to be facing losses of more than $300 billion from mortgage financing. But the real losses will be suffered by ordinary homeowners. The total value of residential real estate, in the United States, is about $21 trillion. A 15% loss would be the equivalent of a $3 trillion loss in household wealth. Things aren’t looking so good for the average homeowner.

That would be a whole lot of ‘flation’ taken out of the system...and a hard landing for the millions of people who’ve been floating in air for the last 20 years.

Poor Mervyn King. The man is the head of the Bank of England. He was just trying to do the right thing. When the credit crisis began this summer he, alone among central bankers, stood firm. No bailouts, said he. If we rescue reckless lenders and imprudent speculators, he opined, it could “sow the seeds of a future financial crisis.”

But integrity in a central banker is like honesty in a politician or chastity in a prostitute – the quality is completely at odds with his profession. Economists talk about the “moral hazard” of allowing investors to do the wrong thing and get away with it. But the hazard is greatest for central bankers themselves. Not since Paul Volcker has any central banker been able to stand up straight. Instead, they bow to pressure – from politicians, the public, the media, and the squirrelly economics profession itself. This has led to what some economists refer to as an “asymetrical response” from the financial authorities. When the going is good...they are reluctant to tighten up on credit. But when the going is not so good...they ease up quickly.

Mr. King resisted pressure for a few weeks. Then, when the tabloids began running photos of depositors lining up to get their money back from troubled mortgage lender Northern Rock, he buckled. He turned to the cameras and offered to help out. “You need money...” he almost said. “Just come see me.”

“I’ve seen this movie before,” said Angelo Mozilo, boss of Countrywide Financial, “and it always ends in some form of recession.”

Does it? Real estate prices have gone down before – sometimes sharply – in the United States. But the declines were always confined to certain regions. Now, for the first time ever, real estate prices are falling nationwide.

If they fall 10% or more – as Alan Greenspan suggests – it will take more than $2 trillion out of the nation’s wealth. Of course, it was never real wealth anyway...as we pointed out many times. It was just ‘on paper.’

Still, many Americans spent the money anyway...borrowing against the inflated value of their own homes in order to get cash. Now, the value may disappear. But the debt will still be there. What happens next depends on what prefix you put before the ‘flation.’ If it is ‘in’ interest rates tend to rise...then, the cost of servicing the debt pushes the hapless debtor into the poorhouse. If it is ‘de’ ...then he loses his job...his house falls in value, along with his stocks...and he is out of luck. Either way...the result is a slump (eventually).

Bill Bonner is the President of Agora Publishing. For more on Bill Bonner, visit The Daily Reckoning.