Yesterday, the Dow hit a new all-time high. We scarcely believed it was possible...since it seemed obvious to us that the bear market that began in January of 2000 had not yet fully expressed itself. Which is to say, after going up...stocks were supposed to go down. Actually, they have gone down in real terms; even at today's new high, the inflation-adjusted Dow is still nearly 20% below its level of six years ago...and anyone who has held the Dow stocks during that period is a damned fool. Still, it is a new high.

Which brings us to the central part of this week's confessional...as well as the central fraud of today's vast public spectacle in the world economy...not to mention the central inconvenience of all living things and natural phenomena.

We begin by admitting that we have been wrong. The Dow's new record brings out a rush of humility and contrition in your editor. He feels he must own up to other crimes and misdemeanors, great and small, to which he is not even guilty.

Squirming in his chair...sweating...his heart thumping...he wishes to make a clean breast of it.

In the winter of 2002, he watched as the feds set about blowing up another huge bubble. Techs had crashed. The World Trade Center was history. The economy seemed to be sinking into a recession...widely thought to be a precursor to a 'Japan-like slump,' to use your editor's words against him. Alan Greenspan cut rates down to 1%. George W. Bush ginned up his 'War on Terror.' Between the two of them, they pulled off a 'coup d'economie'- pouring trillions of new money and new credit into the world economy. Not since the time of Noah had the planet seen such a flood of liquidity.

Still, we thought it wouldn't work. We were wrong. Upon this tide floated up almost every house and hovel in the world...and upon this new housing price bubble the entire world economy rose up too. The typical house in America had barely risen at all in the preceding 100 years. But in the first five years of the new century, it shot up more than 50%. And suddenly, everybody with a pulse and a credit card had money to spend. The recession was soon over...and a new boom was underway.

But it was a strange recession...and a strange boom that followed. In the recession, we pointed out at the time, people did not do what they typically do in such times. Instead of cutting back spending, they actually spent more. Instead of paying down debt, they actually borrowed more. Instead of undoing the mistakes that they had made during the preceding boom, they actually made more of them. What sort of strange recession was this? It was phony; it was no recession at all.

And then, the feds fed the economy phony money to fix the funk. They did not dip into savings; no, they had no savings. Instead, they merely put out more phony dollars...which produced a phony boom. The great boom that the United States has enjoyed for the last five years is as phony as the recession before it. People have not really gotten richer; they do not earn more money and save it. No, real earnings have barely budged. Savings have disappeared. What they have done instead is to borrow more money on the collateral of their house-price gains. And at the end of the day, if such a time were ever to come, they are worse off. For now they owe more money; they are deeper in debt than they were before the feds came to the rescue...with no greater earnings to help them get out.

Our Public Spectacle theory holds that every episode has a beginning, a middle and an end. There is no boom without a bust. There is no day without a night...no silver lining without a cloud and no glass half-full without missing half its contents. This is not so much an insight as an intuition. We feel it more keenly in autumn, when the leaves fall, than in the springtime....and now that we are approaching 60, we feel it in our very bones. Everything comes to an end, dear reader. And this bubble too.

But today a dear reader writes back:

"I'm not in debt, lower middle class, and manage my affairs to live within my means. I applaud you guys, but wonder if you're not missing something.

"You keep hammering away that all this debt has been accumulated in violation of Austrian Economic Principles, so when the time comes to begin paying back the debt, in accordance with the principles of Austrian Economics, the whole financial system will melt down. Don't you think that the Fed, and affected financial institutions, will simply come up with more innovative refinancing schemes to keep people in their houses and paying SOMETHING toward retirement of their debt, rather than letting them walk away and cause housing prices and the economy to plummet?????? Then, to keep the consumption demand going, create another bubble elsewhere?

"From where I sit, the uncertainty we face is how much traction the new consumption demand bubble will have, not how fast the housing bubble collapses. The Fed and affected financial institutions know they cannot afford to let housing prices collapse."

Indeed, they cannot. So, why now? Why can't the feds create another bubble? Why couldn't Napoleon sack Moscow...and go on to take Peking too? Why can't Lance Armstrong win the Tour de France another time...maybe with one leg off?

So why not another bubble? Because what we read in the papers tells us that bubble-time must be over. Housing costs are up sharply nationwide, reports the New York Times. It varies greatly by region, but the number of people who spend more than 30% of their revenues on housing is much higher than it was five years ago.

Meanwhile, housing prices nationwide are off 2%....and in certain areas, they seem to be in free-fall. New York housing has "dropped dead," says the New York Sun. The whole country is "house poor," adds the Associated Press. People have a much bigger asset than they had before, but they have to spend more of their money on keeping a roof over their heads.

And now, with regulators and ambitious prosecutors looking for a mortgage lender whom they can make an example of, it's hard to see how they could revive the kind of wild lending that blew up the housing bubble to its present proportions. It's one thing to put money into the hands of speculators at Goldman Sachs; it's another to get it into the mitts of the lumpen, who might baulk at the interest payments.

We are just guessing, of course...but our guess is that the big, bad housing bubble is dead. Save a new war, we can't imagine what will replace it. If we're right, it is time to look at the empty part of the glass...and the downside of the credit cycle.

But were we not wrong before? Could we not be wrong again?

Of course, dear reader; you didn't have to ask.

And weren't we wrong about gold for nearly two decades? You didn't have to bring that up, dear reader.

And where's that Japan-like slump we've been forecasting?

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