Housing, Depressions and credit collapses

From the Financial Times:

Great piece by Vernon L. Smith (Nobel Prize winner in Economics) and Steven Gjerstad.

"Financial and economic collapses in 2007-2008 and 1929-1930 followed unprecedented residential mortgage credit expansions. Both generated household balance sheet crises that were transmitted to banks as asset prices collapsed against fixed debts. Industry suffered from declining expenditures on housing and durable goods, and income fell when production and employment declined. Irving Fisher (1933) described this spiral in "The debt-deflation theory of great depressions."

"The chart shows percentage changes in expenditures on consumer non-durables and services (C), GDP, consumer durables (D), non-residential fixed investment (I), and housing (H). The change for each category is computed relative to its level at the start of the recession in Q4 2007."

This is a chart of the same data relative to their 1929 levels. Eerily similar no?

"The last chart shows annual average AAA bond rates and the corresponding velocity of the monetary base from 1919 to 1940 and 2001 to 2008 (with five year averages for 1941 to 2000 and quarterly averages for Q4 2008 through Q3 2009)."

There's too much good stuff for me to quote, I might as well copy and paste the whole thing in here. So follow the link above and read it all.


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