As housing prices fall over long time spans, households have to make decisions about how they are going to turn the debt they acquired on the way up into equity.
There are two basic choices; get in front of the falling price curve and sell at a either a loss or gain depending on timing, or if the household has the income, pay down the debt over time as a forced savings plan. The former allows for greater savings and re-investment and the latter is a suicidal prison term chained to one price decaying asset.
In either case, households turn to saving and away from consumption.
The charts above and below are from an article by Jack Crooks of Black Swan Trading where he argues:
1) The demand for dollar liquidity in a world where the European banking system is desperately deleveraging and many in the private world are doing the same likely means the world reserve currency remains supported, even though it is likely Ben Bernanke would like to push the buck lower.
2) The commodities super cycle is behind us. This doesn't mean all commodities go lower; agricultural commodities could spike again and are subject to lots of volatility. But even the Australian Central Bank believes there has been a peak in the mining cycle in Australia.
3) The credit crunch (2008-09) really was a sea change. Massive personal balance sheet over-leverage, coupled with the decline in the biggest personal asset, real estate, seems to have triggered a sea change in both real consumption and attitude toward future consumption. This means more savings. More savings tends to mean more money in fixed income (keeping yields low).
4) The knock-on effect of a change in reduced global consumption and increased savings is the catalyst for rebalancing the current account deficit nations with the current account surplus nations. It is especially bad news for those with export-dominated growth models who will take the brunt of the adjustment domestically; and we know who you are: China, Germany, Japan...