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The Great Recession - A Final Exam How much do you know about what happened?

#21 User is offline   Winstonm 

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Posted 2012-November-02, 06:56

View Postmike777, on 2012-October-28, 03:59, said:

I think it is open to debate

In fact I find your points for the most part worthless.

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In any point if you have proof...hard proof that is accepted ok what caused this recession ok....
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what gets me per many books...see silver for one..is how often proof real prev exp.... I mean real proof is not repeated in exper.......in fact it is not repeated....


Kenneth Rogoff (Republican) and Carmen Reinhart wrote: This time it is different, eight centuries of financial folly. Rogoff and Reinhart wrote a column two weeks ago or so for Bloomberg that said the crisis of 2008 and 2009 was a "full blown systemic meltdown".

Rogoff went on to say that it normally takes 10 years to recover from this type financial crisis.

Comparing this recovery to a garden variety business cycle recession is disingenuous. Holding out hope that the recession caused the financial crisis - when no other recession since WWII has done so - seems to me to be a case of denial of reality in order to hold onto ideological belief that is no longer supported by fact.
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#22 User is offline   phil_20686 

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Posted 2012-November-02, 08:03

I wasn't going to weigh in on the R&R study, but I think maybe I should. Firstly, it should be pointed out that their methodology is hardly watertight. If you had looked down all developed economies for slow, L-shaped, recoveries, you would have come up with exactly their list of financial recessions. That looks suspiciously like data mining. Of course, I have no real objection to that, it is a normal way to pull out parallels, but lets be clear, they looked at all slow recoveries and said they all have associated financial crises.

However, that seems obvious: if you have a long period in which businesses and people earn less than they were expecting, you will obviously have a lot of balance sheet impairment, as debts will not be repaid, and hence a financial crises. If you took R&R's data and said "slow recoveries caused by insufficiently counter cyclical policy lead to financial crises" it wouldn't be at all obvious how that is a worse conclusion than the one they have drawn.

Moreover, there are some curious omissions. Argentina had a a financial crises at least as severe as the USA's lehman brothers moment, including genuine bank runs, and yets its GDP per capita (which I prefer to total GDP as it strips out population rises) did fine:

Posted Image


Iceland also seems to be doing ok:

Posted Image

Its already above 2008 prosperity and still growing strongly. France's banks are terribly undercapitalised, and yet its per capita GDP is well above its pre-crises peak:

Posted Image


Even the UK looks ok on this measure:

Posted Image


So you might ask WTF!!!! Whys is this so different from what I have heard is going on!!!

The answer is that I have rather slipped one by you by using PPP (Purchasing Power Parity). Here is the UK GDP as you probably have seen it:

Posted Image


which doesnt look so rosy. But the story here is that your average British consumer is actually better off than before the recession, as deflation has increase the purchasing power of each £. Of course, this scale "obviously" causes financial instruments like debt to be impaired. The impairment is reflecting the change of price of money. Getting seventy cents on the dollar for your bond might well be equivalent in PPP.

So the key point here is to realise that we have (and are) living through a period of monetary deflation, somewhat masked by increasing demand for goods in the developing world, which is increasing the `real prices' of things.

Also, note how wide swings in the price of money screw up everything. These huge differences in PPP measures of GDP and the normal measures are totally unparalleled in post war period. Think for a little about what this means: it means that the average cost of living modifier for the UK (or pretty much anywhere) has declined, which means, essentially, that wages have collapsed. This is `obviously' going to drive a financial crises. You cannot pay your mortgage if your wages decline in nominal terms, no matter how much they climb in `real' terms.
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#23 User is offline   mike777 

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Posted 2012-November-02, 09:56

View PostWinstonm, on 2012-November-02, 06:56, said:

Kenneth Rogoff (Republican) and Carmen Reinhart wrote: This time it is different, eight centuries of financial folly. Rogoff and Reinhart wrote a column two weeks ago or so for Bloomberg that said the crisis of 2008 and 2009 was a "full blown systemic meltdown".

Rogoff went on to say that it normally takes 10 years to recover from this type financial crisis.

Comparing this recovery to a garden variety business cycle recession is disingenuous. Holding out hope that the recession caused the financial crisis - when no other recession since WWII has done so - seems to me to be a case of denial of reality in order to hold onto ideological belief that is no longer supported by fact.



/Winston I am glad they are putting forth a hypothesis, stating their methods...now lets hope other economists test their predictions in a scientific method so others can challenge the findings.

Keep in mind my post asked the question what caused this recession, not if it was a "standard recession"
To put it another way as far as I know it is still an open debate what causes any recession let alone this last one.

Until then I think to claim it is not open to debate is not credible.

To be blunt in this one case you seem to being the one holding onto an ideological belief....

Science is not based on the opinions of scientists, rather it is a process that tests reasonable alternative hypotheses.

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"What caught my eye was the claim that that the financial crisis produced a severe recession rather than the other way around. I dont know but I thought this question was still very much open to debate among economists?"
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#24 User is offline   Winstonm 

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Posted 2012-November-02, 10:33

View Postmike777, on 2012-November-02, 09:56, said:

/Winston I am glad they are putting forth a hypothesis, stating their methods...now lets hope other economists test their predictions in a scientific method so others can challenge the findings.

Keep in mind my post asked the question what caused this recession, not if it was a "standard recession"
To put it another way as far as I know it is still an open debate what causes any recession let alone this last one.

Until then I think to claim it is not open to debate is not credible.

To be blunt in this one case you seem to being the one holding onto an ideological belief....

Science is not based on the opinions of scientists, rather it is a process that tests reasonable alternative hypotheses.

--


"What caught my eye was the claim that that the financial crisis produced a severe recession rather than the other way around. I dont know but I thought this question was still very much open to debate among economists?"


Point noted, Mike. Ideology is a 2-way street. I simply am of the opinion that my ideology is data-derived rather than narrative-derived.
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#25 User is offline   kenberg 

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Posted 2012-November-02, 12:41

I would like clarity on one point from Mike: As I read your post, it was not, or at least not only, asking what caused the recession but more significantly stating that many economists believe that the financial crisis was caused by the severe recession. You said:
"What caught my eye was the claim that that the financial crisis produced a severe recession rather than the other way around. I don't know but I thought this question was still very much open to debate among economists?"

It's then fair to ask: Which economist think this? No doubt the financial crisis and the recession had a feedback relationship but, for example, are there economists who think that the collapse of Lehman Bros was a result, rather than a partial cause, of the severe recession? The economy was in recession before the collapse, but the severe recession was later, no? I suppose it depends on the meaning of severe.

And maybe on the definition of cause.
I have read my Aristotle so I know that causes come in four categories. Possibly it was the ontological cause.aka the bullshit cause
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#26 User is offline   mike777 

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Posted 2012-November-02, 17:53

View Postkenberg, on 2012-November-02, 12:41, said:

I would like clarity on one point from Mike: As I read your post, it was not, or at least not only, asking what caused the recession but more significantly stating that many economists believe that the financial crisis was caused by the severe recession. You said:
"What caught my eye was the claim that that the financial crisis produced a severe recession rather than the other way around. I don't know but I thought this question was still very much open to debate among economists?"

It's then fair to ask: Which economist think this? No doubt the financial crisis and the recession had a feedback relationship but, for example, are there economists who think that the collapse of Lehman Bros was a result, rather than a partial cause, of the severe recession? The economy was in recession before the collapse, but the severe recession was later, no? I suppose it depends on the meaning of severe.

And maybe on the definition of cause.
I have read my Aristotle so I know that causes come in four categories. Possibly it was the ontological cause.aka the bullshit cause



There was a Financial Analyst Journal paper a while ago.

I posted a link in some forum here on it but I cannot find it now. This was maybe one or two years ago?

Perhaps someone with better search skills than myself could find it or I could just read through 2 or 3 years of journals stashed away upstairs someplace.

The big things I remember from it was:
1) the claim the recession caused the finan...crises not the other way around
2) macro economists dont know/agree what causes recessions, any recession.

----




"Most explanations of the 2007-2008 financial crises-including excessive leverage, subprime mortgages, exotic derivatives, reckless risk taking, and easy money that spawned a housing bubble-are inconsistent with the elementary principles of finance."



From a paper by Richard Roll in 2011.

I think in the past here in the forums I posted comments from an article written by numerous profs from the Univ of Chicago which basically stated economists dont know what causes a recession but I cannot seem to find it with the search function.
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In any event Roll goes on to suggest that if we misdiagnosis the problem we may be using the wrong treatment protocol and the current medicine may be making the problem worse. Hence the stubbornly high rate of unemployment and lethargic consumer spending.


He says that perhaps Human capital values starting falling in mid2007 because the anticipated growth rate in labor income declined.

---


All of this reflects back on the current budget talks and whether we should advocate for a larger or relatively smaller public sector.

Financial Anaylsts Journal volume 67, number 2. 2011.
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#27 User is offline   Winstonm 

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Posted 2012-November-03, 17:14

View Postmike777, on 2012-November-02, 17:53, said:

There was a Financial Analyst Journal paper a while ago.

I posted a link in some forum here on it but I cannot find it now. This was maybe one or two years ago?

Perhaps someone with better search skills than myself could find it or I could just read through 2 or 3 years of journals stashed away upstairs someplace.

The big things I remember from it was:
1) the claim the recession caused the finan...crises not the other way around
2) macro economists dont know/agree what causes recessions, any recession.

----




"Most explanations of the 2007-2008 financial crises-including excessive leverage, subprime mortgages, exotic derivatives, reckless risk taking, and easy money that spawned a housing bubble-are inconsistent with the elementary principles of finance."



From a paper by Richard Roll in 2011.

I think in the past here in the forums I posted comments from an article written by numerous profs from the Univ of Chicago which basically stated economists dont know what causes a recession but I cannot seem to find it with the search function.
-----


In any event Roll goes on to suggest that if we misdiagnosis the problem we may be using the wrong treatment protocol and the current medicine may be making the problem worse. Hence the stubbornly high rate of unemployment and lethargic consumer spending.


He says that perhaps Human capital values starting falling in mid2007 because the anticipated growth rate in labor income declined.

---


All of this reflects back on the current budget talks and whether we should advocate for a larger or relatively smaller public sector.

Financial Anaylsts Journal volume 67, number 2. 2011.


The other side of this is that the path in previous financial crisis led recessions is a slower and longer recovery.
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#28 User is offline   mike777 

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Posted 2012-November-03, 18:16

"Most explanations of the 2007-2008 financial crises-including excessive leverage, subprime mortgages, exotic derivatives, reckless risk taking, and easy money that spawned a housing bubble-are inconsistent with the elementary principles of finance."


In any event Roll goes on to suggest that if we misdiagnosis the problem we may be using the wrong treatment protocol and the current medicine may be making the problem worse. Hence the stubbornly high rate of unemployment and lethargic consumer spending.


He says that perhaps Human capital values starting falling in mid2007 because the anticipated growth rate in labor income declined


From a paper by Richard Roll in 2011

http://www.cfapubs.o...69/faj.v67.n2.3
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#29 User is offline   y66 

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Posted 2014-May-02, 07:57

Why Economics Failed by Paul Krugman.

Quote

On Wednesday, I wrapped up the class I’ve been teaching all semester: “The Great Recession: Causes and Consequences.” (Slides for the lectures are available via my blog.) And while teaching the course was fun, I found myself turning at the end to an agonizing question: Why, at the moment it was most needed and could have done the most good, did economics fail?

I don’t mean that economics was useless to policy makers. On the contrary, the discipline has had a lot to offer. While it’s true that few economists saw the crisis coming — mainly, I’d argue, because few realized how fragile our deregulated financial system had become, and how vulnerable debt-burdened families were to a plunge in housing prices — the clean little secret of recent years is that, since the fall of Lehman Brothers, basic textbook macroeconomics has performed very well.

But policy makers and politicians have ignored both the textbooks and the lessons of history. And the result has been a vast economic and human catastrophe, with trillions of dollars of productive potential squandered and millions of families placed in dire straits for no good reason.

In what sense did economics work well? Economists who took their own textbooks seriously quickly diagnosed the nature of our economic malaise: We were suffering from inadequate demand. The financial crisis and the housing bust created an environment in which everyone was trying to spend less, but my spending is your income and your spending is my income, so when everyone tries to cut spending at the same time the result is an overall decline in incomes and a depressed economy. And we know (or should know) that depressed economies behave quite differently from economies that are at or near full employment.

For example, many seemingly knowledgeable people — bankers, business leaders, public officials — warned that budget deficits would lead to soaring interest rates and inflation. But economists knew that such warnings, which might have made sense under normal conditions were way off base under the conditions we actually faced. Sure enough, interest and inflation rates stayed low.

And the diagnosis of our troubles as stemming from inadequate demand had clear policy implications: as long as lack of demand was the problem, we would be living in a world in which the usual rules didn’t apply. In particular, this was no time to worry about budget deficits and cut spending, which would only deepen the depression. When John Boehner, then the House minority leader, declared in early 2009 that since American families were having to tighten their belts, the government should tighten its belt, too, people like me cringed; his remarks betrayed his economic ignorance. We needed more government spending, not less, to fill the hole left by inadequate private demand.

But a few months later President Obama started saying exactly the same thing. In fact, it became a standard line in his speeches. Nor was it just rhetoric. Since 2010, we’ve seen a sharp decline in discretionary spending and an unprecedented decline in budget deficits, and the result has been anemic growth and long-term unemployment on a scale not seen since the 1930s.

So why didn’t we use the economic knowledge we had?

One answer is that most people find the logic of policy in a depressed economy counterintuitive. Instead, what resonates with the public are misleading analogies with the finances of an individual family, which is why Mr. Obama began echoing Mr. Boehner.

And even supposedly well-informed people balk at the notion that simple lack of demand can wreak so much havoc. Surely, they insist, we must have deep structural problems, like a work force that lacks the right skills; that sounds serious and wise, even though all the evidence says that it’s completely untrue.

Meanwhile, powerful political factions find that bad economic analysis serves their objectives. Most obviously, people whose real goal is dismantling the social safety net have found promoting deficit panic an effective way to push their agenda. And such people have been aided and abetted by what I’ve come to think of as the trahison des nerds — the willingness of some economists to come up with analyses that tell powerful people what they want to hear, whether it’s that slashing government spending is actually expansionary, because of confidence, or that government debt somehow has dire effects on economic growth even if interest rates stay low.

Whatever the reasons basic economics got tossed aside, the result has been tragic. Most of the waste and suffering that have afflicted Western economies these past five years was unnecessary. We have, all along, had the knowledge and the tools to restore full employment. But policy makers just keep finding reasons not to do the right thing.

If you lose all hope, you can always find it again -- Richard Ford in The Sportswriter
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#30 User is offline   mike777 

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Posted 2014-May-02, 17:37

Just read a short article where the author said the great recession started in August of 2007 when money markets lost their liquidity.

Not sure what caused this loss.

The focus of the article, based on book about "trading" was really about the principle of trade first, figure out the cause later
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#31 User is offline   mike777 

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Posted 2014-May-02, 18:11

I thought it was interesting to compare the trend of this data to GDP

Data for this Date Range

US Government Gross Output Historical Data

March 31, 2014 3.061T
Dec. 31, 2013 3.040T
Sept. 30, 2013 3.048T
June 30, 2013 3.038T
March 31, 2013 3.044T
Dec. 31, 2012 3.049T
Sept. 30, 2012 3.082T
June 30, 2012 3.046T
March 31, 2012 3.045T
Dec. 31, 2011 3.018T
Sept. 30, 2011 3.042T
June 30, 2011 3.028T
March 31, 2011
------------------------------------------------

usa GDP


Data for this Date Range



March 31, 2014 17.15T
Dec. 31, 2013 17.09T
Sept. 30, 2013 16.91T
June 30, 2013 16.66T
March 31, 2013 16.54T
Dec. 31, 2012 16.42T
Sept. 30, 2012 16.36T
June 30, 2012 16.16T
March 31, 2012 16.04T
Dec. 31, 2011 15.82T
Sept. 30, 2011 15.61T
June 30, 2011 15.46T
March 31, 2011
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