The stock market has been running up since 2003, during the housing boom. So money wasn’t leaving, it was entering the stock market. It wasn’t just low rates though. It was the exotic loans and a reduction of credit quality. They loaned money to anyone at unbelievable terms. That is what really got it going.
If China floated their currency
If China floated their currency, trade would be more balanced as we would be paying more for their goods and so we would look elsewhere. Their exports would fall along with their economy. Our prices would be higher, leaving us with less goods for more money and our economy would stall. So we are stuck. We need a slow revaluing over time so we avoid a potentially disastrous shock for both countries. But that’s off the topic.
“The next big thing”
I would think that those that found fast gains in stocks, then fast losses, turned to another investment type when that housing market heated up and looked like “the next big thing”. Once addicted to chasing return, they simply looked for a different game. Fixed income investors are probably more risk adverse than to start trying to flip properties and buying with the adjustable, no money down, mortgages that fueled the real estate boom.
Dr. Douglas Rice 