The Third Depression

I guess my question was very vague. Let me be more specific.

When people talk about causes, they can mean a few different things. For example, if someone is crossing the street at a walk signal, and is hit by a drunk driver, we tend to say that the drunk driver caused the accident. The accident could have been prevented if the pedestrian had been more careful, perhaps, but he was generally justified in crossing at a walk signal. The driver, on the other hand, was doing something unexpected and dangerous. So in this sort of situation, we can point to a cause.

Then again, there are other accidents where there is no single cause. If you ask what caused Chernobyl, you could answer that it was caused by bad reactor design; or by failing to follow safety protocols; or by running a dangerous experiment; and, from what I've read about the accident, all of these explanations would be somewhat correct. All of these actions were reckless, and the absence of any one of them could have prevented the accident. So with Chernobyl, there are many independent factors which collide in an unpredictable way to create a catastrophe.

Yet again, there are systems like the weather. If you want to know why it's raining, you can point to particular things that happened recently - like moisture moving in from the pacific or what have you. Each event that occurs has some proximate causes. But overall, the weather is chaotic and unpredictable. There's not really any way to analyze it into overall causes - the best we can do, long term, is the ultimate forecase of the 'hippy dippy weatherman': 'the weather will continue to change, on and off, for a long, long time'

So, for me, right now, the economy is pretty much like the weather. There are highs and lows, and each one has its particular characteristics, but I can't see an overall system to it. I'd love to have a level of understanding where it is more like the driving accident: I could point to the particular asshole who caused the mess. If that's not possible, I'd at least like to have a Chernobyl level of understanding, where I have some sense of what mistakes were made.

So anyway, I guess I've read some pieces of the story from a few different sources, and they all give a fairly plausible story of how A preceded B, and ~A would have prevented B. Some of these are: deregulation, low interest rates, government interference in the housing market, bad modeling of risk on the part of finance firms and credit agencies, capitalism itself. I have a little bit of an understanding of each of these stories. But I'm still confused over which of these could be considered independent causes. For example, if the financiers somehow needed to find a place to put their money, then it may have been a consequence that they came up with risk models which drastically underestimated the risk of certain products.

So, what I'd like to know is, how did low interest rates lead specifically to this housing-led finance bubble? Were the other factors coincidental, or forced?

I hadn't ever heard that borrowing was actually below the rate of inflation - so that's very interesting to me. But then, why didn't the bankers just borrow money and put it into treasury bonds or the stock market? Why build up this house of cards with subprime mortgages and mortgage-backed securities and whatever else?

Thanks for taking the time to answer my questions. I'll also look into Schiff later (I don't really like video, but I'll see if my library has one of his books).

We have so many people today who needs aren't being met and still aren't contributing. What about Basic Income motivates people to work when all their needs are met by doing nothing?

This question even ignores logistical difficulties like what the definition of a wage "to meet all their needs" would be, or where the money to fund such a program would come from.

However, if following his advice in the past has led the world to financial ruin, wouldn't it be logical to question his assessment of the current situation?

Absolutely. But in and of itself, that doesn't make him wrong.

You're essentially saying that anyone who gets hammered by the "correction" necessarily morally deserved it because they must have "played in this mess". Because otherwise, you are arguing that some of the people who didn't play in the mess should give money to others who may or may not have played.

This, besides the fact that a correction has already happened, as evidenced by the drop in house prices and the number of homes in foreclosure.

If there is another "correction" now, beyond what has already happened, and it causes even more bankruptcies, discharged debts, haircuts, bank runs, and the like, then the entire economy will suffer, not just those who played in the mess.

As banks look toward deflationary times, they are holding onto cash reserves. (http://research.stlouisfed.org/fred2/series/EXCRESNS) This may be because they fear making loans that will not be paid back 100%, but the result is deflationary because they are all doing it, and they are all keeping that money from the system. It's a self-fulfilling prophecy.

A deflationary period, while our country has so much private debt, combined with high unemployment, will likely leave us with more and more bankruptcies and the "dynamo problem" of the great depression. If this is what you're looking forward to to punish a few house flippers, well, I can't agree with your sentiment on that.