However, although the subprime debacle triggered the crisis, the developments in the U.S. mortgage market were only one aspect of a much larger and more encompassing credit boom whose impact transcended the mortgage market to affect many other forms of credit. Aspects of this broader credit boom included widespread declines in underwriting standards, breakdowns in lending oversight by investors and rating agencies, increased reliance on complex and opaque credit instruments that proved fragile under stress, and unusually low compensation for risk-taking.
This is an incredibly important point that needs further discussion.
Above is a chart or real (inflation adjusted) median household income from the Census Bureau. Note that during this expansion income dropped and then increased but is not higher now than at the start of this expansion. Also note that while there has been an increase over the last 30 years, the increase is (roughly) $8000. In other word, it's not that big an increase.
At the same time, here is a chart of real (inflation adjusted) GDP
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Notice that real (inflation adjusted) GDP more than doubled for the years 1980 onward. That leans an interesting question: where did the money for consumer purchases come from to expand GDP?
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Household debt. The bottom line is people are spending money they don't own. But at the same time, it's understandable. While their family income isn't increasing with the nation's product, people in general want more stuff. So they borrow money to get it.
What we're going through right now is the great unwinding of the giant, 30 year debt acquisition binge we've been going through for the last 30 years. And it isn't pretty.
3 comments:
Bernacke left out criminal activity as a cause.
Can you be too big to prosecute?
Boy you said it, Bonddad. What gets me is that a lot of people (including several economists who I respect) were urging people to go out and buy buy buy over Christmas. I understand the urgency of stabilizing the markets, but I think we have to let go of the fact that there is no easy let down here. Prolonging the pain isn't a good thing. Interesting thing about a recession mindset. In the last twenty years, recessions are the only time when it's been acceptable to not keep up with the Joneses. Because the Jones lost their house, but still, its sort of a relief. I'm so glad the fake boom is over. I never understood how everyone in Manhattan suddenly owned a G3 phone, and replaced their blackberry every three months.
Chairman Ben S. Bernanke, We Are on Our Way to Abolish Credit.
All of Our Economic Problems Find They Root in the Existence of Credit.
Out of the $5,000,000,000,000 given out to the banks, that is $1,000 for every inhabitant of this planet, what is it exactly that WE got?
A Credit Free, Free Market Economy Is Possible.
Both Dynamic on the Short Run & Stable on the Long Run.
I Propose, Hence, to Lead for You an Exit Out of Credit:
Let me outline for you my proposed strategy:
✔ Preserve Your Belongings.
✔ The Property Title: Opt Out of Credit.
✔ The Credit Free Money: The Dinar Shekel AKA The DaSh, Symbol: - .
✔ Asset Transfer: The Right Grant Operation.
✔ A Specific Application of Employment Interest and Money.
[A Tract Intended For my Fellows Economists].
If Risk Free Interest Rates Are at 0.00% Doesn't That Mean That Credit is Worthless?
Since credit based currencies are managed by setting interest rates, on which all control has been lost, are they managed anymore?
We Need, Hence, Cancel All Interest Bearing Debt and Abolish Interest Bearing Credit.
In This Age of Turbulence The People Wants an Exit Out of Credit: An Adventure in a New World Economic Order.
The other option would be to wait till most of the productive assets of the economy get physically destroyed either by war or by rust.
It will be either awfully deadly or dramatically long.
A price none of us can afford to pay.
“The current crisis can be overcome only by developing a sense of common purpose.
The alternative to a new international order is chaos.”
- Henry A. Kissinger
Let me provide you with a link to my press release for my open letter to you:
Chairman Ben S. Bernanke, Quantitative [Ooops! I Meant Credit] Easing Can't Work!
I am, Mr Chairman, Yours Sincerely,
Shalom P. Hamou AKA 'MC Shalom'
Chief Economist - Master Conductor
1 7 7 6 - Annuit Cœptis
Tel: +972 54 441-7640
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