• This is a political forum that is non-biased/non-partisan and treats every persons position on topics equally. This debate forum is not aligned to any political party. In today's politics, many ideas are split between and even within all the political parties. Often we find ourselves agreeing on one platform but some topics break our mold. We are here to discuss them in a civil political debate. If this is your first visit to our political forums, be sure to check out the RULES. Registering for debate politics is necessary before posting. Register today to participate - it's free!

A general slump? Maybe not really.

Civil1z@tion

Member
Joined
Jun 1, 2010
Messages
247
Reaction score
105
Location
US
Gender
Male
Political Leaning
Libertarian
Of course certain industries are doing well, but its still a "general" slump in the aspect that the economy as a whole is doing poorly.

I'm actually a little surprised that video games and Hollywood are doing so well as you'd think they would be extra luxuries that people would cut back on. But I suppose when times are tough escapism becomes more appealing.
 

Lord Tammerlain

DP Veteran
Joined
Jan 25, 2010
Messages
19,759
Reaction score
8,564
Gender
Undisclosed
Political Leaning
Undisclosed
Of course certain industries are doing well, but its still a "general" slump in the aspect that the economy as a whole is doing poorly.

I'm actually a little surprised that video games and Hollywood are doing so well as you'd think they would be extra luxuries that people would cut back on. But I suppose when times are tough escapism becomes more appealing.
During the depression the movie industry did fairly well actually. It is a cheaper way to entertain oneself rather then going on a vacation. So while cutback will be made in going out for dinner at Applebee's, oe the summer vacation, people will go see a movie for a few hours or buy a video game to keep themselves entertained/distracted for a time
 

Gipper

Banned
DP Veteran
Joined
Feb 6, 2008
Messages
25,120
Reaction score
7,658
Location
Theoretical Physics Lab
Gender
Male
Political Leaning
Libertarian - Right
The purpose of beta being an average of 1 means that some have higher, and some have lower.

Lower ones will tend to pull through this. Not to mention that products boasting inelastic demand really aren't recession-sensitive.
 

phattonez

Catholic
DP Veteran
Joined
Jun 3, 2009
Messages
30,599
Reaction score
4,223
Location
Los Angeles, CA
Gender
Male
Political Leaning
Other
So what we have is a supply shock?


Not enough houses, cars, labour to make the economy move smoothly?
What we have is a recession. It is not a demand shock, or anything like that. Those theories don't make sense becuase why would demand fall so suddenly everywhere? There has to have been a reason. The point is, we need to shift production to those industries that are growing. Let them grow, let failing businesses shrink. Everything in its correct proportion, and then you will get back to growth. Raising aggregate demand hinders this process, making the recession last longer.
 

Lord Tammerlain

DP Veteran
Joined
Jan 25, 2010
Messages
19,759
Reaction score
8,564
Gender
Undisclosed
Political Leaning
Undisclosed
What we have is a recession. It is not a demand shock, or anything like that. Those theories don't make sense becuase why would demand fall so suddenly everywhere? There has to have been a reason. The point is, we need to shift production to those industries that are growing. Let them grow, let failing businesses shrink. Everything in its correct proportion, and then you will get back to growth. Raising aggregate demand hinders this process, making the recession last longer.
Why would demand fall?

Ask yourself that question while thinking about debt and high levels of it.

When you use debt to fund current consumption, you will depress consumption in the future when the debt needs to be paid back. .

This does not mean that all industries or sectors will shrink in sales but that a majority will. It also does not mean that some might not grow due to shifts in consumption ( ie close to home entertainment vs long distance vacations)

The demand shock is due to the debt deleveraging, and of course the reduced demand has caused higher unemployement which has further reduced demand
 

phattonez

Catholic
DP Veteran
Joined
Jun 3, 2009
Messages
30,599
Reaction score
4,223
Location
Los Angeles, CA
Gender
Male
Political Leaning
Other
But why would it happen all at once like it has? Shouldn't it have been a more gradual occurrance?
 

Lord Tammerlain

DP Veteran
Joined
Jan 25, 2010
Messages
19,759
Reaction score
8,564
Gender
Undisclosed
Political Leaning
Undisclosed
But why would it happen all at once like it has? Shouldn't it have been a more gradual occurrance?
Should the tech bubble have occured at once?

Should the housing bubble have occured at once?

The housing bubble involved people taking on massive amounts of debt, along with people during the mid 2000 taking out home equity loans to fund their lifestyle at that time, taking away consumption from the future. People tend to act as groups in a large number of areas. Economics and investment is one aspect of that. The housing bubble, the tech bubble and the resulting economic slowdowns from each are good examples of peoples tendancy to act as groups. When people act as a group they tend to forget ignore more rational thinking.
 

oldreliable67

DP Veteran
Joined
Oct 3, 2005
Messages
4,641
Reaction score
1,102
Gender
Male
Political Leaning
Undisclosed
Below is a little graphic that goes a long way to explaining the onset of the 'Great Recession." Note that the cycle illustration begins with falling home prices. It does not explain or illustrate the conditions that caused home prices to begin falling.
 

Attachments

Last edited:

Onion Eater

Well-known member
Joined
Jun 28, 2008
Messages
753
Reaction score
139
Location
Scottsdale, AZ
Gender
Male
Political Leaning
Libertarian
You read tabloids? Cool! I liked the pictures on the left, particularly the one of the reality TV star whose top came off while swimming in the ocean.

Below is a little graphic that goes a long way to explaining the onset of the 'Great Recession."

. . . .

Note that the cycle illustration begins with falling home prices. It does not explain or illustrate the conditions that caused home prices to begin falling.
Are you aware that the first half and the second half of your post contradict each other? If your chart doesn't explain what caused home prices to begin falling, then it hasn't gone a very long way in explaining the onset of the Great Recession.

Of course, during recessions, all the gloom-and-doomers have charts showing vicious cycles and, during expansions, all the get-rich-quickers have charts showing virtuous cycles. My advice is to invest in the chart-making industry. There's a demand for charts no matter which way the economy is moving.
 

phattonez

Catholic
DP Veteran
Joined
Jun 3, 2009
Messages
30,599
Reaction score
4,223
Location
Los Angeles, CA
Gender
Male
Political Leaning
Other
Should the tech bubble have occured at once?

Should the housing bubble have occured at once?

The housing bubble involved people taking on massive amounts of debt, along with people during the mid 2000 taking out home equity loans to fund their lifestyle at that time, taking away consumption from the future. People tend to act as groups in a large number of areas. Economics and investment is one aspect of that. The housing bubble, the tech bubble and the resulting economic slowdowns from each are good examples of peoples tendancy to act as groups. When people act as a group they tend to forget ignore more rational thinking.
It doesn't make sense. Why would home prices begin falling all at once with seemingly no cause. I grant that it was inevitable but the situation was unsustainable, but why did it happen all at once? And please, no animal spirits, that pop-psychology has no basis in reality.
 

Lord Tammerlain

DP Veteran
Joined
Jan 25, 2010
Messages
19,759
Reaction score
8,564
Gender
Undisclosed
Political Leaning
Undisclosed
It doesn't make sense. Why would home prices begin falling all at once with seemingly no cause. I grant that it was inevitable but the situation was unsustainable, but why did it happen all at once? And please, no animal spirits, that pop-psychology has no basis in reality.

If the prices generally rose at the same time why could they not drop in value at the same time?

I dont care about animal spirits but do consider that when bubbles occur people tend to forget or ignore traditional aspects of valuations. As for the cause of the housing prices having to drop, it is rather simple. They should never have been as high as they were. Once the credit market tightened up the loose credit standards that were allowing the high housing prices to be kept up for the time, caused demand for housing to drop, lower demand means lower prices

Overall markets generally revert to the mean, the P/E ration traditionally is around 13-17, if it is higher the ratio will over time go back to the mean, if lower it will rise back to the mean.


Overall it shows that markets are not perfect, as they are made up of people, and people are subject to making decisions based on emotions rather then logical decisions based on historical data and reasonable projections for the future based on past historical patterns
 

oldreliable67

DP Veteran
Joined
Oct 3, 2005
Messages
4,641
Reaction score
1,102
Gender
Male
Political Leaning
Undisclosed
OnionEater said:
Are you aware that the first half and the second half of your post contradict each other? If your chart doesn't explain what caused home prices to begin falling, then it hasn't gone a very long way in explaining the onset of the Great Recession.
The linkage that I was attempting to illustrate was between the acceleration of deteriorating conditions in one specific sector (via home prices) to the aggregate economy (via its impact on holders of debt specific to that sector). Sorry if that wasn't clear.

The onset of the decline in housing prices was, IMO and as others have alluded to but with differing descriptions, largely caused by what I refer to as 'the greater fool theory.' While most often used in reference to the tech bubble and other episodes of soaring asset prices, the greater fool theory describes the willingness of purchasers to accumulate some risky asset in the belief that, "yeah, I paid way too much, but somewhere out there is a bigger fool than I, one who will take this house/tech stock/take your pick off my hands at an even higher price."

Worked well for quite a while, for both tech stocks and houses. But as Lord Tammerlain and others have noted, the impact of excessive leverage may magnify profits, but it also really, really magnifies losses. Consequently, it didn't take much of a tightening in credit standards to start the house of cards tumbling.

Receiving less attention but significant nonetheless in igniting the fall was the impact of higher resets on option ARMS and other 'teaser rate' mortgages. As significantly higher resets loomed, it became apparent that a significant number of mortgagees were not going to be able to service those loans; as those mortgages (typically the very weakest and least creditworthy to begin with) began to default and/or the properties put up for sale, the 'run on the bank' began in earnest.

Both the tech stock and the home price bubbles re-affirmed the old market axiom that the market will do whatever it takes to inflict the maximum amount of damage on the maximum number of participants. Whats next, do you suppose?
 

phattonez

Catholic
DP Veteran
Joined
Jun 3, 2009
Messages
30,599
Reaction score
4,223
Location
Los Angeles, CA
Gender
Male
Political Leaning
Other
Overall it shows that markets are not perfect, as they are made up of people, and people are subject to making decisions based on emotions rather then logical decisions based on historical data and reasonable projections for the future based on past historical patterns
But usually bad decisions are liquidated and that quickly. Why did it not happen in this case? If a person opens up a small hardware store next to The Home Depot, he's probably going to have to abandon that venture soon. Why did it not happen with homes? This is the interesting question that for too long has gone unanswered.
 

Barbbtx

DP Veteran
Joined
Jan 7, 2010
Messages
8,467
Reaction score
1,993
Location
W'Ford TX
Gender
Female
Political Leaning
Conservative
10 industries going strong - despite the recession

Apparently there are industries that are doing well even though we're in a recession. Are they feeling the pinch from a "demand shock?"
Darn
This list just convinced me more that we are in deep doo doo.
People aren't working so of course they are going to be sitting around watching movies, eating chocolate, drinking beer and smoking more. Of course they are going to be shopping in big box stores. They are cheaper and thats where they are buying their beer and sweets.
 

Lord Tammerlain

DP Veteran
Joined
Jan 25, 2010
Messages
19,759
Reaction score
8,564
Gender
Undisclosed
Political Leaning
Undisclosed
But usually bad decisions are liquidated and that quickly. Why did it not happen in this case? If a person opens up a small hardware store next to The Home Depot, he's probably going to have to abandon that venture soon. Why did it not happen with homes? This is the interesting question that for too long has gone unanswered.
The same reason the banks did not go under. Government support.

The government did not want the major banks to go under due to systemic risk of potentially having the financial industry collapse, and the government did not want homeownership to collapse do to the social stability risk that having millions of people thrown out of their place of residence would create, let alone the extra risk to the financial industry of having collateral collapse even further
 

Kushinator

I'm not-low all the time
Supporting Member
DP Veteran
Joined
Jan 2, 2006
Messages
20,485
Reaction score
8,039
Location
lincoln park
Gender
Male
Political Leaning
Independent
The government did not want the major banks to go under due to systemic risk of potentially having the financial industry collapse, and the government did not want homeownership to collapse do to the social stability risk that having millions of people thrown out of their place of residence would create, let alone the extra risk to the financial industry of having collateral collapse even further
Not to mention potential FDIC liabilities that would have far exceeded (IMHO) the cost of stimulus and bailouts.
 

phattonez

Catholic
DP Veteran
Joined
Jun 3, 2009
Messages
30,599
Reaction score
4,223
Location
Los Angeles, CA
Gender
Male
Political Leaning
Other
The same reason the banks did not go under. Government support.

The government did not want the major banks to go under due to systemic risk of potentially having the financial industry collapse, and the government did not want homeownership to collapse do to the social stability risk that having millions of people thrown out of their place of residence would create, let alone the extra risk to the financial industry of having collateral collapse even further
Home ownership collapse? Homes weren't just going to disappear. Many people would have lost their homes, for sure, but prices would have come down to reasonable levels, so it's not like we'd have everyone wandering around the city while homes remain empty.

And why shouldn't the financial industry have collapsed? If you make a bad decision then shouldn't you lose influence (in this case money) in the market? Wouldn't that be good for efficiency?
 

Lord Tammerlain

DP Veteran
Joined
Jan 25, 2010
Messages
19,759
Reaction score
8,564
Gender
Undisclosed
Political Leaning
Undisclosed
Home ownership collapse? Homes weren't just going to disappear. Many people would have lost their homes, for sure, but prices would have come down to reasonable levels, so it's not like we'd have everyone wandering around the city while homes remain empty.

And why shouldn't the financial industry have collapsed? If you make a bad decision then shouldn't you lose influence (in this case money) in the market? Wouldn't that be good for efficiency?
You are forgetting about temporary effects which can last for a few years. You have declining house price which causes mortgages to be worth more then homes, no one wants to sell in that situation, and as people do not want to buy when housing values are dropping, home ownership for a period of time, ( a few years ) would be drastically lower the current levels. Basicaly untill the situation stabilizes and then general market mood changes, to match the improved economic situation
.


As for a general collapse, during normal market times when the bankrupcty of a single or a few couple major players could be handled by the market without a massive disruption in the industry it would be a good thing for the economy overall as the weak players get eliminated. During a crisis, having some weak players go under may cause otherwise strong players to go under as well. Had Citi gone under, probably 30% of the finanicial industry would have gone under in the US, along with the industries reliant on the financial industry for continued operations
 

obvious Child

Equal Opportunity Hater
DP Veteran
Joined
Apr 8, 2008
Messages
19,883
Reaction score
5,120
Location
0.0, -2.3 on the Political Compass
Gender
Undisclosed
Political Leaning
Other
Not surprising those on the list are doing well. VIDEO GAMES is questionable though. Only a relatively few studios are doing well. Many are sucking wind as consumers cut down purchases to a few games. Of the 10 on the list, 6 are inelastic. And none of them are characterized by high levels of debt. More then a few are known industries sitting on mountains of money. That article really doesn't tell us anything new.
 

phattonez

Catholic
DP Veteran
Joined
Jun 3, 2009
Messages
30,599
Reaction score
4,223
Location
Los Angeles, CA
Gender
Male
Political Leaning
Other
You are forgetting about temporary effects which can last for a few years. You have declining house price which causes mortgages to be worth more then homes, no one wants to sell in that situation, and as people do not want to buy when housing values are dropping, home ownership for a period of time, ( a few years ) would be drastically lower the current levels. Basicaly untill the situation stabilizes and then general market mood changes, to match the improved economic situation
.
This doesn't answer my claim. Are you saying that all of those people would just be living outside of the city while those homes remain unoccupied? Seems like a crazy idea to me.

As for a general collapse, during normal market times when the bankrupcty of a single or a few couple major players could be handled by the market without a massive disruption in the industry it would be a good thing for the economy overall as the weak players get eliminated. During a crisis, having some weak players go under may cause otherwise strong players to go under as well. Had Citi gone under, probably 30% of the finanicial industry would have gone under in the US, along with the industries reliant on the financial industry for continued operations
But they all made mistakes, so why shouldn't they fail? Why should we keep resources in the hands of people who obviously don't know what they're doing?
 

Lord Tammerlain

DP Veteran
Joined
Jan 25, 2010
Messages
19,759
Reaction score
8,564
Gender
Undisclosed
Political Leaning
Undisclosed
.
This doesn't answer my claim. Are you saying that all of those people would just be living outside of the city while those homes remain unoccupied? Seems like a crazy idea to me.
the banks may not be willing to sell at the price people would want to pay, and rather sit on house as an asset rather then sell at a drastic loss. Or not to drive housing values even lower potentially causing more people to default
But they all made mistakes, so why shouldn't they fail? Why should we keep resources in the hands of people who obviously don't know what they're doing?
Yes they did, and realistically they should suffer drastic loss's
 
Top Bottom