I agree that people acted recklessly. I agree there was a collapse. I agree that this recklessness was a direct cause of the collapse. I'm sure we agree on these things. The point I want to make is that we must consider why people acted recklessly. Why is it that everyone, all at once, suddenly decided to make bad mistakes. What are the chances that the most prosperous men in the world, arguably, suddenly make mistakes that characterize those who wouldn't make it to that level? How is this possible? What is the cause of all this stupid lending, etc?

You have to understand why people have acted this way. Keynesian economics, which is mainstream and government advocated, would say that a psychology invades the market and people go crazy. This does not seem to be a very good explanation to me, it seems like it's invoking the laws of "magic". We could ask, for example, why people get into this craze only at select times?

F.A. Hayek won the Nobel Prize for explaining the cause in a different way based on central banking. In our case the central bank in the Federal Reserve. To give an outline, basically the Federal Reserve is the source of all of the bad lending and cheap money; they cause people to make bad decisions in the marketplace that they would not have otherwise if the economy was not controlled as such; eventually these mistakes pile up so much, a bubble, that it must burst. Here is a flowchart:

Federal Reserve forces interest rates to be artificially low (that is, lower than market forces would set them at)

-->

Entities are encouraged to borrow and invest money in long term projects due to these unnatural, low interest rates; however these are projects and investments that would not have been made without easy money, and in addition the physical resources are not available in the economy to complete them. So in short, people are investing in much more risky business and in most cases are investing in projects that simply cannot be completed due to a lack of resources.

--> Mistakes build up, bubble bursts.[/quote]

You have to understand that in a recession is telling us that some peoples' jobs are unproductive. Let me give an example. Suppose we have 100,000 people who are employed, get health benefits, have a good wage, and have decent living conditions and all of that. However their job is to go into empty fields in the mid-west, dig holes, and fill them back in. Every day person A goes to work, takes out his shovel, works hard to dig that hole, then takes off lunch, comes back and fills in that hole. A hard day's work indeed. He's paid and life is great. However eventually society decides that the hard work he's doing is simply not benefiting society. The market doesn't want this service or good he's providing (in this case it's extreme, but the point is still valid). And so he loses his job. Do we see this as a good thing? Yes! Because the market is telling him that this "job" he's performing is bad, and that he should look for a productive one! Then, let's say, he finds a job on a local farm providing food for people in the town. That's a job that is productive and society wants, and so now he is doing good work. He's using his time and energy to make society more prosperous. This is a natural function of markets with both labor and resources. Recessions are corrections to bad decisions and unproductive work. Recessions reallocate unproductive resources to productive ones. It's a fixing of the economy. In the short term, of course I do not like people to lose their jobs. However you have to remember that having a job, in and of itself, is not the point. The point is to do something with your job. The reason people are losing jobs in our economy is because the jobs are unproductive. We want these people do lose their unproductive jobs so they can find productive ones.

The government prevents the corrections I've outlined above from happening. It encourages the market to continue using resources in an unproductive way, it encourages the market to continue investing in outrageous, non-completable projects, it encourages the cheap lending standards, it encourages unproductive jobs to stay as they are. The government intervening is not letting the market correct itself. If you do this repeatedly, over and over, as we have, the recession that still must occur is the compounding of all the mistakes that you didn't let happen, which is a lot, lot worse. Those mistakes haven't gone away, you've simply delayed them. It's like if we bailed out the hole digging company for the sake of those people not losing their jobs. Yes, in the short term we are giving those people a wage and they are working. But in the long run they are destroying wealth! They are taking that money, resources, and doing something with it that is unproductive! That business should be allowed to fail, and these people will find good jobs.

Exactly! That's the point! We should jump the 2ft (the natural market correction, a small recession) instead of delaying the jumping just because we don't want to jump, in which case we must jump a lot further and be very injured (government intervention).

Here, watch this video. He will explain in gory detail what I've tried to summarize:

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"All that exists is One. People only call this One by different names". - VEDAS

"War is so unjust and ugly that all who wage it must try to stifle the voice of conscience within themselves." - TOLSTOY

bump (too short of a message adding more)

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"All that exists is One. People only call this One by different names". - VEDAS

"War is so unjust and ugly that all who wage it must try to stifle the voice of conscience within themselves." - TOLSTOY

Simple question since you contend the housing bubble was a function of "artificially low" interest rates.

Why aren't housing prices higher now than two years ago?

Interest rates are now significantly lower than they were two years ago.

Housing prices are lower now because they are supposed to be lower, that is, they never should have gotten as high as they did. The market is trying to bring itself into balance. We want housing prices to come down if we want the economy to truly recover.

Interest rates are lower, yes, because the Federal Reserve is trying to fix the problem by making them lower. Can you not see the complete absurdity in this notion? How can one fix the problem of low interest rates by making them lower? This is the entire problem in the first place! The Federal Reserve very existence is a hazard to the US economy, but if it is permitted to exist it should raise interest rates. We got into this mess because we spent too much and we borrowed too much. To fix the problem we have to start cutting back and saving money, which means interest rates have to go up.

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"All that exists is One. People only call this One by different names". - VEDAS

"War is so unjust and ugly that all who wage it must try to stifle the voice of conscience within themselves." - TOLSTOY

Wait a minute. You said there was a housing price bubble because intererst rates were "artificially low". If that caused prices to bubble, they should be higher now because interest rates are much lower.

It makes no sense.

It can't be any more absurd that the claim that low interest rates made the prices bubble in the first place? If low interest rates made prices too high, how can it make them too low also?

Can you not see the complete logical contradiction of your position?

See, what is happening is the government and the fed are struggling to keep the natural correction forces of the market from happening. The market had overcome these forces in 2008, hence the collapse. Low housing prices are indicating that the market wants to correct all of these bad investments. Government intervention is trying to stop this process by lowering interest rates more, encouraging people to spend more and go further into debt. So right now housing prices are low because of those natural forces being so powerful because there are so many bad assets.

I never said that. The natural correction, i.e. the recession, is trying to bring the economy into balancing by making housing prices lower. The government is fighting this process and trying to fix prices.

It's a logical contradiction to advocate, as the solution, the very policy that caused the problem. I don't think I can be any clearer, friend.

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"All that exists is One. People only call this One by different names". - VEDAS

"War is so unjust and ugly that all who wage it must try to stifle the voice of conscience within themselves." - TOLSTOY

Speak for yourself.

My doctors say both my hearts are working just fine.

You must've been a fan of Gideon Gono. He heroically kept the economy of Zimbabwe from collapsing for over a year. Of course, like Bernanke, he was largely responsible for the reasons behind the collapse in the first place.

Yep, steal the savings of people in order to get a short term gain at a much more expensive long term loss. That's good praise right there!

No, they've just manipulated every possible thing they can manipulate in order to stave off the inevitable.

He wasn't wrong; the government did what it always does when it has control over the money supply and disaster is imminent. It goes looking for an asset bubble. The bubble in real estate and private debt carried us another 6 years. That has collapsed, and the government is creating one last, massive bubble in public debt in order to try to reflate the economy. I wonder if you have some idea where it can go next? I do, but it's not pretty. In the end, paper money always collapses. Always.

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“Some writers have so confounded society with government as to leave little or no distinction between them ... [Yet s]ociety is produced by our wants, and government by our wickedness.” - Thomas Paine, Common Sense

"Bleeding head good. Healed head bad."

Long term, America is fiscally dead, but I doubt the end drawth nigh this year...

And his use of the terms gimmicks is more accurate than not; that said, there are still enough gimmicks, ink and paper, and accounting tricks for America to stay afloat for a while.

As I said though, long term there is no hope... $12+ trillion in current debt, and 10's of trillions more planned - no way can we survive that; it's only a matter of time.

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wist

True, there is still plenty of wealth to be raped from the people. The next step is already being talked about. That's the nationalization of retirement accounts, offering a huge pot of cash from which the government can borrow. Forget foreign investments and diversification, you'll get treasury bonds and whatever Wall St fund the government approves of. If you don't already have a retirement account, no worries, they'll take 5% and eventually 10% from your salary to put in "savings" for you.

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“Some writers have so confounded society with government as to leave little or no distinction between them ... [Yet s]ociety is produced by our wants, and government by our wickedness.” - Thomas Paine, Common Sense

"Bleeding head good. Healed head bad."