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What Economists Still Don’t Get About the 2008 Crisis

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Re: What Economists Still Don’t Get About the 2008 Crisis

#181

Post by philwelch »

nickik wrote: post #110
hayekfan wrote: post #8

Keynesian Economics are the economics of political convenience. If something goes wrong, we can juice the economy by engaging in extaordinary activities which generate the illusion of wealth resulting in increased spending. These ideas were very popular until Great Britain encountered stagflation - conditions under which both economic recession and inflation coincided and traditional Keynesian levers and predictions…

I am a fan of Austrian economics and von Mises and Hayek. However I think you are seriously mis-characterizing them. The von Mises Instiute is a very finge even within the Austrian tradition. They are essentially Hard Core Southern Rothbardians. They mis-characterize Mises as the perfect pre-Rothbard. Peter Schiff in particular is not even an Austrian economist and he widely mis-characterizes the Austria Business Cyc…

The Rothbardians seem like the libertarian equivalent of Marxists; a bunch of people who suddenly discovered, "hey, our political ideology sounds a lot less like a political ideology if we tell everyone it's just Economics! Also, the entire field of economics is lying to you because it's a conspiracy."

Re: What Economists Still Don’t Get About the 2008 Crisis

#182

Post by tormeh »

pdonis wrote: post #63
cm2187 wrote: post #52

To me the biggest mystery about the 2008 crisis is why so much QE has resulted in so little inflation. The only convincing arguments I have heard so far is that: 1. at the same time banks were forced to significantly deleverage, so while the fed was pouring money into the systems, banks were effectively pouring money out of the system. 2. inflation happened but it was all concentrated into financial assets, real esta…

> at the same time banks were forced to significantly deleverage, so while the fed was pouring money into the systems, banks were effectively pouring money out of the system. That's not an "argument", it's an observation. Almost all of the QE "new money" was never used by the banks to make loans; it just sat in their accounts at the Fed. Why? Because the banks weren't fools: they knew they had way too little reserves…

>And yes, that would have caused inflation

Which I believe is the entire point of QE. I find the current incarnation of QE (buying bonds) unimaginative at best. I get that helicopter drops are politically hard, but there's gotta be something better than this.

Re: What Economists Still Don’t Get About the 2008 Crisis

#183

Post by faet »

debatem1 wrote: post #137
throwaway1909 wrote: post #91

Earlier quoted context omitted.

Could you give some citations?

Sure. This is pretty much my point in two charts: https://www.financialsense.com/sites/default/files/users/u61... http://www.pewresearch.org/ft_dual-income-households-1960-20... If you want to zoom in on more recent events wikipedia has a pretty compelling chart here: https://en.wikipedia.org/wiki/Household_income_in_the_United...

"Real Output" is misleading as capital inputs/investing can greatly change it. Multifactor productivity vs Compensation is pretty equal.

http://i.imgur.com/5mOQARo.png

Re: What Economists Still Don’t Get About the 2008 Crisis

#184

Post by closeparen »

fallingfrog wrote: post #75
closeparen wrote: post #23

Earlier quoted context omitted.

Active traders tend to lose money relative to the “rest of us” passive index investors.

I get the sense that that relationship will reverse itself as soon as the market turns down. Bear in mind that a day trader can cash out in a second; you and I will will have to wait two business days.

Indexing as a strategy implies staying invested through downturns and not trying to time the market. Selling during downturns and buying during boom times is as wrong as an investment algorithm can possibly be.

Re: What Economists Still Don’t Get About the 2008 Crisis

#185

Post by simonh »

pas wrote: post #180
bbstevecou wrote: post #96

Earlier quoted context omitted.

Yup, that's why China lost 3.8Trillion out of their 7Trillion wealth in the last decade. https://www.forbes.com/sites/insideasia/2017/02/22/china-cap... And why China is in deep trouble because they have 3Trillion (supposedly) in foreign reserves, but IMF said China needs at least 2.5Trillion for normal import/export operations. So really, they only have 500B in foreign reserves. And now they're going through reserve…

Why do they need 2.5T USD for import-export? Could you elaborate on this?

They need the reserves to cover their credit risk. This Forbes article lays it all out pretty well.

https://www.forbes.com/sites/salvatorebabones/2018/05/24/chi...

Re: What Economists Still Don’t Get About the 2008 Crisis

#186

Post by Tiktaalik »

cm2187 wrote: post #52

To me the biggest mystery about the 2008 crisis is why so much QE has resulted in so little inflation. The only convincing arguments I have heard so far is that: 1. at the same time banks were forced to significantly deleverage, so while the fed was pouring money into the systems, banks were effectively pouring money out of the system. 2. inflation happened but it was all concentrated into financial assets, real esta…

> 2. inflation happened but it was all concentrated into financial assets, real estate...

Real estate prices in Vancouver have spiked since 2008 so sign me up as someone who believes the fincialization of housing and QE is a main component in why Vancouver housing prices suddenly became wildly out of sync with local incomes.

Re: What Economists Still Don’t Get About the 2008 Crisis

#187

Post by adventured »

pdonis wrote: post #63
cm2187 wrote: post #52

To me the biggest mystery about the 2008 crisis is why so much QE has resulted in so little inflation. The only convincing arguments I have heard so far is that: 1. at the same time banks were forced to significantly deleverage, so while the fed was pouring money into the systems, banks were effectively pouring money out of the system. 2. inflation happened but it was all concentrated into financial assets, real esta…

> at the same time banks were forced to significantly deleverage, so while the fed was pouring money into the systems, banks were effectively pouring money out of the system. That's not an "argument", it's an observation. Almost all of the QE "new money" was never used by the banks to make loans; it just sat in their accounts at the Fed. Why? Because the banks weren't fools: they knew they had way too little reserves…

> Or money printed to pay ordinary people whose retirement savings had collapsed through no fault of their own. And yes, that would have caused inflation

We did exactly that. The Fed orchestrated the greatest ordinary person bailout the world has ever seen: it reinflated the US housing market and salvaged the net worth of the entire middle class in the process.

It did cause vast inflation. Just look at the cost of a house in 2012 vs 2018 or the equity situation then vs now:

Average gain on a home sale in 1Q04: positive ~$50,000.

Average gain on a home sale in 1Q12: negative ~$50,000.

Average gain on a home sale in 1Q18: positive ~$55,000.

https://i.imgur.com/SfktmBU.png

Median sales price for homes sold in the US:

1Q06: $247,000 (peak bubble...)

1Q12: $238,000

1Q18: $338,000 (!)

Those recent gains are very heavy with inflation courtesy of the Fed, and they are entering the real economy slowly but surely with every exit. That's also why the Fed is being forced to raise interest rates when it's the last thing the economic party wants.

The artificially juiced stock market (artificial courtesy of the low rates), which has created millions of new millionaires in the last four or so years, is also inflationary. It has also helped to salvage countless pension funds for large numbers of ordinary persons, funds that were badly under water. Every time someone sells their hilariously inflated Netflix stock at 200 times earnings, they can thank the Fed, and when they dump that into the economy (consumer goods or housing) it's inflation in action.

Re: What Economists Still Don’t Get About the 2008 Crisis

#188

Post by pdonis »

tormeh wrote: post #182
pdonis wrote: post #63

Earlier quoted context omitted.

> at the same time banks were forced to significantly deleverage, so while the fed was pouring money into the systems, banks were effectively pouring money out of the system. That's not an "argument", it's an observation. Almost all of the QE "new money" was never used by the banks to make loans; it just sat in their accounts at the Fed. Why? Because the banks weren't fools: they knew they had way too little reserves…

>And yes, that would have caused inflation Which I believe is the entire point of QE. I find the current incarnation of QE (buying bonds) unimaginative at best. I get that helicopter drops are politically hard, but there's gotta be something better than this.

> Which I believe is the entire point of QE.

Not really. The point of QE is to stimulate economic activity. Unfortunately, buying bonds doesn't do that either if banks don't use the newly printed money to make loans.

Re: What Economists Still Don’t Get About the 2008 Crisis

#189

Post by bigger_cheese »

nickik wrote: post #143
mcguire wrote: post #111

Earlier quoted context omitted.

The theory is a bit oversimplified, but not incorrect given that the previous poster isn't alone in seeing the problem in the US, and the experiences of other countries. Why Australia wasn't involved is a different question. ( http://www.abs.gov.au/AUSSTATS/abs@.nsf/Lookup/1301.0Chapter... ) " ...and they didn't have recession. " Yet. How much of Australia's economic growth is made up of financial shenanigans and the…

Arguing that Australia's 30 year history of no recession is build on 'financial shenanigans and housing' are the arguments of people who defend a theory that is not workable. Even were that so, why can Australia managed this 'shenanigans' but others can not. I agree with the Article, the Australian central bank did its job and they didn't have a crisis, the Fed was a disaster and the US suffered the consequences. The…

I don't think it is correct to say Australia didn't have a crisis. I graduated in 2008 there were no jobs at all until about 2012 companies on the East Coast just stopped hiring. I know I lived through it. About 2/3's of my graduating class (Engineering) left the East coast to move West for work in the mining sector. Fly in Fly out was about all there was going it was tough times and hard lifestyle.

Basically resources sector was only part of economy still functioning retail, manufacturing etc had huge contractions and we are still feeling the impact most of those lost jobs won't come back. Holden, Ford, Mitsubishi etc all those plants shut and left the country.

The resource boom which was driven by Chinese demand for Iron ore + Coal propped up large parts of the economy. Lookup all the articles from treasury etc at the time "Two speed economy" was real.

To say Australia was not affected by 2008 is a gross misstatement.

Re: What Economists Still Don’t Get About the 2008 Crisis

#190

Post by mi100hael »

nickik wrote: post #103
conanbatt wrote: post #39

Earlier quoted context omitted.

This is something that will not work forever. If 100% of investors were passive, they would get fleeced. Passive investing works thanks to active investing. Funny huh?

No it wouldn't. Everybody could be a passive investor and the economy and your portfolio would just continue to exist.

Passive funds are priced based on the activity of active investors trading underlying securities.
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