The Great Recession - and the Recovery - Explained

Discussion in 'Politics' started by Sundial, Dec 2, 2011.

  1. Sundial
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    Sundial Class Warrior

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    Boom and bust cycles are common in countries with financial markets. That's because financial markets work differently from other markets. In other markets, rising prices reduce demand, and vice-versa. In financial markets, rising prices increase demand, which in turn pushes prices even higher. As a result, financial markets are highly unstable. Panics and bubbles regularly follow each other.

    Unfortunately, these booms and busts effect the real economy, because ordinary people have assets which are affected by the gyrations of the market. When there's a bubble, people spend more, thereby increasing national income, GDP and employment. When values plummet, the opposite occurs.

    Bubbles are naturally self-correcting. If a crash leads to a sufficiently deep depression, on the other hand, it can go on indefinitely. In the absence of government regulation or intervention, a financial panic can destroy banks. That, in turn, destroys not just the value of people's financial assets, but their cash savings as well.

    In the most recent financial panic, $15 trillion of net wealth was erased. People reacted by cutting spending, which in turn reduced incomes and employment, which resulted in the recession, which reduced income even more.

    The government, fortunately, reacted by protecting the banks - so that people's money - their checking accounts, savings accounts, CDs - wouldn't also disappear. This prevented a recession from turning into a depression. People might survive the decimation of their 401k's, but they can't survive not being able to buy groceries, because checking account is gone.

    The second thing it did was to spend more into the economy than it was taxing.

    This is essential, because the Federal government is the only institution that has the power to increase spending when every other part of the economy is shutting down. When the government spends money into the economy that wasn't taxed, it increases private sector wealth by the same amount. The cumulative effect was to add several trillion dollars to the economy.

    While a relatively small amount compared to the losses, it was enough to get the economy growing again. Once the the recovery is secure, it becomes self-perpetuating.
     
  2. Chris
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    Chris Gold Member

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    Well done.

    When an economy goes into a deflationary spiral, the government HAS to be the demand of last resort.

    Congress did it with a combination of tax cuts and government spending.

    It probably should have been bigger, but it did the trick.
     
  3. occupied
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    occupied Gold Member

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    That all sounds reasonable, what is unreasonable is an almost total lack of political will to confront the manipulators that willfully built a bubble and are still benefiting from it's collapse to the detriment of the country.
     
  4. Sundial
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    Sundial Class Warrior

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    It's not too late. The economy is growing, but but it's growing slower than it could be. What's needed is a jobs plan. And to extend the payroll tax cut.
     
  5. Sundial
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    Sundial Class Warrior

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    It's hard to punish the malefactors when so many of them are running things. At minimum, we need to maintain the rules that prevent commercial banks from gambling in the financial markets. It'd be nice to break up the cabal of elites who profit no matter how much damage they inflict on the rest of the country, as well...
     
  6. Trajan
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    Trajan conscientia mille testes

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    q- yes or no; Keynes believed in consumer stimulus?
     
  7. Avorysuds
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    Avorysuds Gold Member

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    I love how people claim we have recovered... Wait a fucking month people, you did the same crap last year...
     
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  8. likeabird03
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    likeabird03 Active Member

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    You mean the bailouts saved the economy? Run, go tell your friends that because apparently they didn't get that memo.
     
  9. Trajan
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    Trajan conscientia mille testes

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    yup....annnnnd hold still for another;

    [​IMG]
     
  10. Wiseacre
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    Wiseacre Retired USAF Chief Supporting Member

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    You lefties are entitled to your opinion about the stimulus, that's fine. But here's what bugs me, it coulda and shoulda been done more effectively, they shoulda managed it better to give us more bang for the buck economically speaking. And I thought we were supposed to get a lot infrastructure work done back then, and now we need another $450 billion? Ticks me off, it's like I'm being lied to.

    Doesn't help much either when the president laughs about it and says those jobs weren't as shovel ready as we thought. I'm left thinking either he deliberately mislead us about it or he really didn't know what he was doing. IOW, he was incompetent. Maybe both.

    And here's another thing for you guys to chew on. You say Obama spent trillions that flowed into the economy, yet the lower and middle classes are no better off. I guess all that money ended up with the rich guys and the big corps, how come you're not pissed off about that?
     
    Last edited: Dec 2, 2011

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