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?"
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.
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.
But why would it happen all at once like it has? Shouldn't it have been a more gradual occurrance?
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.
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.
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.
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
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?"
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 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
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?
.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
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.
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.
Yes they did, and realistically they should suffer drastic loss'sBut 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?
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