Well, that's it. It's now official. The bubble in real estate is almost at its end.

How do we know? Alan Greenspan says so.

"Greenspan says housing boom is nearly over," explains a headline in the NY Times.

"Experts warn debt may threaten economy," adds the Washington Post.

My, my...officialdom is becoming rather gloomy.

"Whenever the government tells you to do something," says our friend Pierre, "It's generally a good idea to do the opposite."

Now, the government and the experts are telling us to be careful. Does that mean it's time to be reckless?

Having brought the cauldron to a bubbly boil, officials come out like missionaries at a cannibal picnic. They toss in an ice cube or two, hoping to drop the temperature a bit before they are thrown into the pot.

"History has not dealt kindly with the aftermath of protracted periods of low risk premiums,'' Greenspan said last week. "Such an increase in market value is too often viewed by market participants as structural and permanent."

He was referring to house prices. Investors dance around the fire, convinced that high house-prices are not only here to stay, but that further price appreciation is practically guaranteed.

Our old friend, Scott Burns, tells us that house price gains have added $4 trillion to the nation's "wealth" since 2002. We put the word, wealth, in quotation marks because we wish to remind readers that house price gains add nothing - not a penny - to the nation's real wealth. Still, on the balance sheets of American households $4 trillion was added during the last three years.

"Compared with the median values of the last 50 years, these are big shifts. Viewed statistically, values are at extremes. The median value of houses as a percent of net worth was 26.8 percent. That's 2.6 standard deviations from the current 36.3 percent value....

"The bottom line: Collectively, we're heavily mortgaged in a period of extreme prices."

Mr. Greenspan is probably a little embarrassed... and worried. The party has gotten disgracefully out of control. And the invitations all bear the Fed chairman's name! What's worse, if things don't work out the way the savages hope, they're likely to turn on the Fed chief himself.

Markets make opinions, not economists. The Fed chairman's below-market lending rates helped create the hot property bubble. His obscure and chilly words are not likely to lower temperatures among the savages. For that, it will take the cold shock of a real bear market.

*** Things are looking pretty bad for the citizens of New Orleans - or for anyone who was counting on a drop in crude oil prices any time soon.

Even though Hurricane Katrina was downgraded from a Category 5 to a Category 2 hurricane, the Big Easy is still in danger. In its noon report, the National Hurricane Center said storm swells will be "near the tops" of the city's protective levee system.

"The smashing impact down there is yet to be determined, the big rigs seem to have been spared, but if Port Fourchon, which is located right outside of New Orleans, (where one-sixth of the nations oil supply comes through) is hit, the prices of oil and natural gas could go through the roof," says our resident commodities expert, Kevin Kerr.

Gas futures spiked 10%, and oil traded near $70 a barrel - and many experts believe the prices could go even higher still.

"The disruption in general seems to have reminded the refineries of their vulnerability and the power of Mother Nature. Gasoline production is destined to be affected, and at the end of the day, the production impact for natural gas and oil will be significant," Kerr told us.

As of today, about 1 million barrels of daily refinery capacity has been shut down by the storm.

*** No, history does not deal kindly with the aftermath of protracted periods of low-risk premiums.

To put it another way, risk perceptions run in cycles...inverse to actual market conditions. The farther down prices have fallen, the greater the perceived risk. Investors want a lot of return on their money to make up for the chance of suffering further decline. But even an economist could see that the further a market has declined, the less decline it has left in it. That is to say, the more investors have lost, the less they have to lose. [This is not true of individual investors, who can still lose 100% of their remaining money.]

On the other hand, when a market has run up - such as the U.S. property market... or the U.S. stock market, for that matter - investors begin to feel that risk is negligible. 'House prices always go up,' they say to themselves. The smart ones recognize the expression as a warning. Intellectually, they see that the risk is actually multiplied by the "protracted period of low-risk premiums." That is, seeing little risk, investors pay too much for property...thus putting themselves in a riskier position. But emotionally, even the smart investors are unable to fight the pull of their own feelings. "I know its crazy," [to buy a house at that price] they tell friends and neighbors, "but I think I'll be alright in THIS neighborhood." Yes, the market has gone nuts...but someone else will be the greater fool, not me!

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