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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

#201

Post by aidenn0 »

JamesBarney wrote: post #198
adventured wrote: post #187

Earlier quoted context omitted.

> 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…

At what interest rate is the stock market not artificially juiced? Also 247,000 to 338,000 over 12 years is not a huge gain. An APR of 2.7% doesn't seem crazy

Considering that historically housing prices have tracked inflation, it seems high to me.

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

#202

Post by _uhtu »

barking wrote: post #99
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?

I think passive investing works, on average, because, on average, companies generate profits and increase in value over time. Active investing loses because transactions have costs in terms of management fees, commission and spread and is how stockbrokers make their money.

I agree that passive investing works, but the real story, I think, is that the economy is guaranteed to grow on average if the population keeps increasing and innovation keeps happening.

If the population grows 3%, we have to produce roughly 3% more, so revenues go up roughly 3%, number of employed goes up roughly 3%, so the economy grows 3%.

If I invent a steel manufacturing process that makes steel 3% cheaper, expenses go down 3%, profits go up, supply goes up, prices go down, the economy grows.

If all you do is passively invest, then over large periods of time you should on average see returns of, roughly, population growth + innovation. Even if everyone is passively investing, it's the same thing. If you actively invest, but still invest in the whole market (as any diversified investor does), you get the same thing, minus ~1% towards. If everyone was actively investing before, and the market grew ~8% per year, and now they passively invested, why would the market not gain the same?

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

#203

Post by epx »

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…

Excess money was absorbed by real estate price increase. It takes time, but this will tricke down to inflation; everybody needs to rent or buy a place to live at some point of the future.

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

#204

Post by _uhtu »

mi100hael wrote: post #190
nickik wrote: post #103

Earlier quoted context omitted.

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.

I don't think he's implying that literally everybody trades passively, of course Zuckerberg is going to actively trade his Facebook shares, I'm going to actively trade my stock options at Public Company X, the guy down the street will still rent his house out instead of selling it and investing passively.

Plus, it's not like passive investing causes securities to never be traded, when I buy into a mutual fund I'm buying stock from someone. That someone is probably retiring and selling their securities.

Lastly, most "active traders" just buy a bunch of Blackrock/Vanguard/SPDR index funds anyway and call it a diversified portfolio that only they could deliver.

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

#205

Post by sjg007 »

pdonis wrote: post #188
tormeh wrote: post #182

Earlier quoted context omitted.

>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.

probably went to credit cards, some house price stabilization and the stock market.

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

#206

Post by _uhtu »

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.

And the market might recover in 2 days and that day trader would lose money for nothing.

In reality, trying to time the market rarely works out, and when it does it can often be attributed to luck. In general, just investing every month is the best strategy.

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

#207

Post by sjg007 »

sonnyblarney wrote: post #141
starbugs wrote: post #128

Earlier quoted context omitted.

This is also what I believe. If you look at the US QEs there is a tight correlation to the stock market. This most likely did not happen by chance. Inflation has simply been confined to some select assets. It's all going to come back into the mainstream economy unless the next recession/depression ends up being extremely deflationary before that happens.

I think the hope is that companies eventually really start to hire more and pay better wages, and then we'll see some actual inflation, and then the Fed will feel safer tightening up. Currently, we are hitting very low unemployment so wages have nowhere to go but up. The weird one is housing: as rates stay low, people take on bigger and bigger mortgages leading to 'housing inflation' ... but it's generally not measur…

You can only "afford" so much house until your wages increase or your equity affords a refinance/sale... unless you can generate side income some way.

I am not actually positive on wages increasing. I feel like there is enough information asymmetry in the market that wages will stay depressed.

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

#208

Post by flukus »

mjevans wrote: post #191
donclark wrote: post #160

Earlier quoted context omitted.

High for everything, or are you talking about cars and real estate? Please provide an example. The products I see on Amazon are fairly cheap unless you are comparing it to products from CHINA.

The the parent posts' user, but... I think /mostly/ the 'big ticket' items; anything with a cost over 1000 USD. However the price of many other items are also quite high, particularly for infinitely replicate-able information (entertainment). I'd argue that the price of many other things under about 10 USD is largely a land ownership or transportation cost; as a society we've become so effective at producing (even gr…

> I'd argue that the price of many other things under about 10 USD is largely a land ownership or transportation cost; as a society we've become so effective at producing (even grown things) that the biggest issue is the price of energy and labor associated with managing those products to end users.

This explains some of the discrepancy but I think it's only a tiny fraction of the total. There is just an ever increasing amount of things that are sold for what they can get away with rather than any inherent value. The generic brand stuff has the same transport and labor costs as the fancy brands yet are much cheaper, which rules that out.

I just went shopping so a fresh example is my instant coffee. The one I buy is almost permanently on sale for half price (not today unfortunately), so it seems pretty logical to assume that they make a profit on this sale price and everything else is just a nice fat margin on people that don't "bargain" hunt. I went half way and only got the small jar, but there are a dozen other things in my shopping bag I don't track the price of.

I know there are plenty of other things we pay much more for than we should, if the rest of the world had to pay what I just did for rice (generic brand) then several billion people would starve this year. It seems we have more cartels than competition.

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

#209

Post by [deleted] »

nickik wrote: post #100
smacktoward wrote: post #48

Earlier quoted context omitted.

> My own theory after digging sometime into Economics is that no one seems to have a clear idea what on earth we are actually doing. I still remember the moment I realized this. It was on the first day of my first class in Economics 101, when the professor began by telling us that economics was a science built upon the assumption that people are rational actors. I thought about all the people I'd ever known, and all…

Can we please stop repeating this same old attack on economics. Just because economics 101 introduces people to some simplified assumptions does not mean all economics is like that. That's like saying, well I was reading a programming book about a Ruby and then I laugh at the professor threw the book in his face and said 'One can never make an Operating system with this'. Honesty, if you truly believe that about econ…

[deleted]

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

#210

Post by pdonis »

sjg007 wrote: post #205
pdonis wrote: post #188

Earlier quoted context omitted.

> 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.

probably went to credit cards, some house price stabilization and the stock market.

If you mean the money the Fed printed as part of QE, no, it went into the banks' reserve balances at the Fed, where it has been ever since.
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