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Depression, we're in troublesome financial times, but this is not a depression. Depressions are ailing free market forces at work.
There's hope that the ailment will mend and the economy will recover. Stimulus works in a Depression economy, Governments regulate commodities and financial markets with a tenacious fervor in Depressed economies. Governments look for ways to put people to work in depressed economies. There is no way in hell there is a consumer class that would or could ever support the corporate main street in every town in America, in a depressed economy.

This is self inflicted monetary burdens placed on the middle class, old, insured, savers, and future pensioners by our Governments obsequious gestures. They tout legislation that punish the banks but it gives them even greater powers to invoke fees and charges than ever, while loaning less money than ever, and hiring less people than ever.

http://research.stlouisfed.org/fred2/graph/?g=32v

red line is annual change in jobs, blue line is annual change in mortgage debt.

This shows how the Bush Boom was created by a $1T/yr+ rise in debt take-on.

Households were borrowing their way to prosperity, 2002-2005.

Zooming in on 2006:

http://research.stlouisfed.org/fred2/graph/?g=32w

you can see how the borrowing bubble peaked right at the jobs peak, and as borrowing faded, so did the jobs.

This was a $1T+ per year direct injection into the consumer economy. It was great while it lasted, but it could not last.

The boom 2002-2004 was somewhat natural in response to lower interest rates and lower taxes. That made housing more affordable so it naturally went up in price, enriching those who owned real estate.

The boom alone would not have created the situation we face now, that took the bubble blow-off of 2004-2007.

Case Shiller shows that home prices are back to 2003 levels:

http://research.stlouisfed.org/fred2/graph/?g=32x

so 2003 was sustainable.

So much for "prevention".

To understand the cure we need to understand why the system levered itself up during the Bush years.

I think it was our last grab for the ring as we sink under our own inability to actually patch the many imbalances in the overall system.

We've got massive trade deficits, with East Asia, Mexico, and the oil producers.

This is sucking hundreds of billions of capital OUT of the wage economy and our trading partners are not bringing this capital back in as wages.

Manufacturing employment is down 6M from the late 1990s:

http://research.stlouisfed.org/fred2/series/USGOOD?cid=32307

The 2001-2003 tax cuts were very inadvisable. They just ended up in higher home values and rents, we got no gain from them.

Launching a $2T misadventure in the mideast was a massive mistake. Taxes need to be $1500/yr higher per household to just pay for that alone.

Per-capita health care is $8000/yr, twice the global average. Gotta fix that.

So the cure is backing out all the mistakes we've made.

Something we are completely incapable of doing, because one side of our political system is actively engaged in CREATING these mistakes, from sheer stupidity and/or revisionist reasons.

Q: What caused this depression?

A. Debt bubble reached it's limit.

I personally caused it. You're welcome.

Kevin says

I personally caused it. You're welcome.

Kevin,
I knew that you were responsible - but I didn't want to call you out because I was doing my best to act within the guidelines of patnet (didn't want to take it outside).

But I don't appreciate your causing this depression. You probably caused the housing crash too - enough is enough!

(as one of my friends likes to say, "behold, the power that is You...")

I wouldn't argue that today is like the 1930's largely because times today are easier. Back then simply finding food was an issue. Now you have cheap food producers (note I don't say "good" food).

What defines someone as poor has also risen significantly. Back then they didn't have various amenities like appliances, communications and so on.

mdovell says

I wouldn't argue that today is like the 1930's largely because times today are easier. Back then simply finding food was an issue. Now you have cheap food producers (note I don't say "good" food).

What defines someone as poor has also risen significantly. Back then they didn't have various amenities like appliances, communications and so on.

But wouldn't the folks in previous depressions have been comparatively better than cavemen? I'm sure they had clothing, tents, and urinals (much like today's OWS protesters!!).

And just because we have mass-produced clothing, electronic communication devices (instead of, say paper a la Hooverville) and other seeming amenities doesn't make it less of a depression, no?

On a related note, I still see the canard bandied about that the CRA caused this depression. The obvious shortcoming with this silly notion is that it doesn't explain why it took 3 decades for it to explode under GWB. It also doesn't explain why redlining was so pivotal to the global economy. :)

What else is wrong with the rightwing notion that the CRA was to blame?

In other words, why is this so obviously a failure of the private sector and not the Government as they would mislead you to believe?

CL says

In other words, why is this so obviously a failure of the private sector and not the Government as they would mislead you to believe?

it's just bullshit to deflect the blame from their own ideological failures.

like blaming war protestors for losing Vietnam.

I've got http://en.wikipedia.org/wiki/All_the_Devils_Are_Here on my iPad now and it's a great read.

Team Red was running Congress 1995-2006, and had the Fed since the 1980s if not 1913, and the executive since 2001, so when things blew up due to their own damn policies the bullshit artists have to bullshit to cover their sins.

This was also seen in the Wallison dissent to the FCIC report.

Just wall-to-wall bullshit from this guy.

"Maybe this email is reaching you too late but I think [William M. Thomas] is going to push to find out if Pinto [Wallison's accomplice] is being paid by anyone."

http://krugman.blogs.nytimes.com/2011/07/15/evil-stupid/

There is an immense Axis of Bullshit in this country.

What caused this depression?

Simple. The underclass depression was caused by us mega-ultra-blindingly wealthy deciding that we deserved to be even wealthier still. It's called Progress. Duh.

Bellingham Bill says

I've got http://en.wikipedia.org/wiki/All_the_Devils_Are_Here on my iPad now and it's a great read.

I want to read that! Maybe I'll go get the electronic copy after all.

Bellingham Bill says

There is an immense Axis of Bullshit in this country.

But it's grade A, American bullshit. The finest mass-produced bullshit ever invented!

Huntington Moneyworth III, Esq says

What caused this depression?

Simple. The underclass depression was caused by us mega-ultra-blindingly wealthy decidingly we deserved to be even wealthier still. It's called Progress. Duh.

Hey---create me a job!!! I have one, but I want a better one---maybe a few more zeros on the end of my check (left of decimal). :)

CL says

Hey---create me a job!!! I have one, but I want a better one---maybe a few more zeros on the end of my check (left of decimal). :)

My prize winning Great Dane needs his anal glands squeezed daily. I will allow you to intern at no cost to me (meaning you pay for your parking on my estate) for a period of six calendar months. If Butch approves, I will consider your opportunity to apply for the position full time with a subsistence wage. There are currently only 57 applicants.

The only drawback is the testosterone gene therapy that gives his coat a brilliant sheen has given Butch a fierce reproductive drive. If he is pleased with your squeezing he will mount you. Best just to let him go to town until he exhausts himself. If he is ever displeased, you will know immediately as he will bite the shit out of you.

Huntington Moneyworth III, Esq says

My prize winning Great Dane needs his anal glands squeezed daily. I will allow you to intern at no cost to me (meaning you pay for your parking on my estate) for a period of six calendar months. If Butch approves, I will consider your opportunity to apply for the position full time with a subsistence wage. There are currently only 57 applicants.

The only drawback is the testosterone gene therapy that gives his coat a brilliant sheen has given Butch a fierce reproductive drive. If he is pleased with your squeezing he will mount you. Best just to let him go to town until he exhausts himself. If he is ever displeased, you will know immediately as he will bite the shit out of you.

Squeezing the anal glands of an oversexed Great Dane and getting either mounted or attacked all for subsistence wages and no clear career benefits.

Hey it beats graduate school...

SIMPLE:
In 1973 BOTH income earners all of a sudden qualify to purchase a home. Home prices almost doubled by 1980. (that was the fuse) Real property prices fell 17% nationwide from 1981 thru 1983. Then in the early eighties the personal computer, with it's expensive software, peripherals and internet was introduced. Lotta money changed hands til About 2008 when ALL that Big money is no longer being spent on engineers , I.T. Techs, associated marketing personal, etc. etc.. HERE WE ARE,,,,,,, headed back to 1983. Tell your congressmen, senators, President(s). Don't waste any more of our tax money saving fannie's ass.

The first time I heard "IT DOES NOT MATTER WHAT YOU PAY FOR A HOUSE. IT WILL BE WORTH 20% MORE NEXT YEAR" was about 1978. By the early 90s most Citizens, as well as Congress, Real Estate Licencee's and Banksters etc. all adopted this insane theory.
A number of years from now this crash won't be more than a footnote in our evolution.

TMAC54 says

IT WILL BE WORTH 20% MORE NEXT YEAR" was about 1978. By the early 90s most Citizens, as well as Congress, Real Estate Licencee's and Banksters etc. all adopted this insane theory.

It's not so insane.

Rents ratchet up:

http://research.stlouisfed.org/fred2/graph/?g=3s5

which pushes people to escape the buzz-saw of rent-seekers in real estate.

If we really want to fix housing we'd liquidate the rent-seeking landlords.

Funny how nobody who cares about high real estate prices proposes that.

Bellingham Bill says

If we really want to fix housing we'd liquidate the rent-seeking landlords.
Funny how nobody who cares about high real estate prices proposes that.

I agree with that. Limiting the use of SFH as rentals would make a difference. I think it would build better neighborhoods, even up school districts, as well as lower prices.

Bellingham Bill says

If we really want to fix housing we'd liquidate the rent-seeking landlords.

Funny how nobody who cares about high real estate prices proposes that.

Why don't you just come out and say profit seeking? We could fix high food prices if we just liquidate the profit seeking farmers. We could fix high health care prices if we could just liquidate the profit seeking doctors. We could liquidate high car prices if we could liquidate the profit seeking car makers. Look how well it all worked for Russia and China.

Bellingham Bill says

It's not so insane.

Rents ratchet up:

I agree. Rents and everything else ratchets (ticks) up. That is the capitalist experiment. You make a little money, I make a little money, the system continues. But when ONE sector explodes, (especially Real property & financials) it restricts revenue for most other industries.

The topic is what caused this depression. An annual 20% appreciation rate doubles principal value in just five years. Is that sustainable ? Is that sane ? Each of us caused the depression by not justifying our investments. Would you research buying IBM after you were told, "BUY IT, IT WILL BE WORTH MORE NEXT YEAR". I WILL SHOW THIS CHART BELOW as "THE SANITY CHART"

Bap33 says

Limiting the use of SFH as rentals lowers prices

I believe limiting anything increases demand and price.

TMAC54 says

That is the capitalist experiment. You make a little money, I make a little money, the system continues.

Collecting rent is not making money, it is parasitically skimming from other producers via land ownership. It is not capitalism, it is rentierism, the same thing that sunk the Soviet system -- people getting something for nothing.

To honestly 'make' money, one must actually create NEW wealth to exchange. Landlording utterly fails this test; whatever it is, it's not 'capitalism'.

But when ONE sector explodes, (especially Real property & financials) it restricts revenue for most other industries.

No, you really don't know what the fuck you're talking about with this.

The real estate boom/bubble was the greatest injection of money the middle class has ever seen. This money -- several trillion dollars in a few short years -- came from the world's savers and was deposited directly into millions of household checking accounts!

At the peak it was $100B A MONTH, and this money was recycled into all sectors of the economy, and even leaked globally (eg. the Japanese recovery of 2005-1H07 came directly from their export growth to our temporarily supercharged consumer segment).

Millions of households used their HELOC money to buy shit, and they also used their HELOC borrowing as capital to feed their entrepreneurial urges.

It was a wondrous thing, 2005-2007, but it could not last.

http://research.stlouisfed.org/fred2/graph/?g=3st

An annual 20% appreciation rate doubles principal value in just five years. Is that sustainable ? Is that sane ?

It served to temporarily reverse the loss of wealth the middle class and below has suffered since 1980.

The reason we're in depression now is that our economy is experiencing its first exposure to the truth of the increasing wealth divide in this country.

We've got too many successful rent-seekers and not enough productive enterprise.

Our middle quintiles are WAY too porous WRT capital formation. They're simply tapped by rent-seekers from every side -- $1.5T/yr for health care, $500B/yr trade deficit, $1T+/yr in housing rents -- these are the major taps that are relentlessly stripping wealth from the schlubs in the middle.

Free market "capitalism" is fucking over this country, and it's going to get worse, since nobody can even see how it's operating.

Start cutting into that $1T/yr+ federal deficit, and the state & local deficits, and we're going to get further doses of truth.

Bellingham Bill says

But when ONE sector explodes, (especially Real property & financials) it restricts revenue for most other industries.

No, you really don't know what the fuck you're talking about with this.

I understand foul language expresses frustration.
To help you understand. As first time buyers and probably second, third and higher over leverage, they have less disposable income left for things like vacations, effecting tourism. Less money for new cars, paint & home improvement etc. In fact, If the private sector is responsible for 70% of the GDP, when more of their income is focused on their largest investment, Other industries suffer. HELOC did not provide unlimited expense accounts for everyone.
What is Bellingham Billy's solution for eliminating those parasitic Landlords ?

Bellingham Bill says

The tricky thing about real estate, and SFH in particular, is that it's really difficult if not impossible to increase the supply of this.

Isn't that what tall buildings are for? You take a block of small buildings, demolish them, then put up a tall building, and fill it with condos, etc.

TMAC54 says

What is Bellingham Billy's solution for eliminating those parasitic Landlords ?

The solution??? he's offered so far is everyone owns their own single family house. If you don't want to own then you must live in a multi family unit with some entity called who knows what, but NOT a landlord collecting the rent. It's all very clear.

Although who puts up these multifamily units without being able to make a profit or being a landlord is pretty murky. Where all these new single family houses are going in downtown san francisco is a little unclear also.

TMAC54 says

HELOC did not provide unlimited expense accounts for everyone.

Did I say that?

HELOC and the money flowing into mortgages was a much greater stimulus than the Bush tax cuts.

If you don't understand that, you don't understand the 2002-2008 time frame, nor will you understand how serious things are now.

Mortgage debt take-on became a 15%+ juicer to incomes during the bubble:

http://research.stlouisfed.org/fred2/graph/?g=3tn

Mortgage debt take-on did not cripple households (initially), it gave them tons of money to buy stuff plus support their businesses.

This should be obvious to everyone but you are too dense or argumentative to be willing to see it.

That's what bubble economies do, become reliant on something that cannot continue forever.

And that's why we're totally fucked now, we can't turn the bubble machine back on now, AND we're barreling right towards massive energy cost and demographic challenges this decade and next.

Our house is way, way out of order, and it's only going to get worse.

What is Bellingham Billy's solution for eliminating those parasitic Landlords ?

Ho Chi Minh had the right idea.

bob2356 says

he's offered so far is everyone owns their own single family house. If you don't want to own then you must live in a multi family unit with some entity called who knows what, but NOT a landlord collecting the rent. It's all very clear.

No, I think "owning" homes shouldn't be the big friction-filled thing it is now.

The reason there's so much over-investment and friction in housing is that it is wall-to-wall rent-seekers.

The system is utterly corrupted from top to bottom.

Eliminating rent-seeking in land would reduce the capital costs of acquiring real estate (since this cost would be the cost of acquiring the physical house itself, not the eternal right to profit from rent), thereby significantly lowering the barrier to entry.

Taxing land more and structures less would direct the market to build more efficiently in space, bringing immense follow-on benefits wrt public infrastructure costs.

bob2356 says

Although who puts up these multifamily units without being able to make a profit or being a landlord is pretty murky.

Multifamily rentals are also largely unnecessary, too. It's part of the predatory system we've got going, and why this society is going down the tubes.

Those profiting from this process will be the first and last to defend it, of course.

But you're still rent-seeking parasitical scum.

Bellingham Billy says

But you're still rent-seeking parasitical scum.

What is the difference between a Landlord and a Banker or any other business people including employers. Are they all profit seeking parasitic scum ? A landlord charges (market rate) for the use of his property, Bankers charge for the use of their Money, Grocers & Retailers charge an average 30% to 50% markup for their products, employers provide their employees only a percentage of their revenue and on and on.
Bottom line our system is based on "WHAT THE MARKET WILL BARE". I agree it is a horrible thing when residents are forced to move. But as stated above, we can not think of a better system.
The best deal I have heard about are co-ops. Get the residents together to buy the property. Or as previously mentioned we just keep building UP !

Back to what caused this DEPRESSION & a CURE.
CL says

What would have prevented it, and what's the cure?

A Percentage of Windfalls should've been regulated (forced into savings) so that there is a "buffer fund" WHEN (not if) things slow down.

THE CURE ? Shop at Costco .

TMAC54 says

Percentage of Windfalls should've been regulated (forced into savings)

Nope. You still don't get what the income imbalance (money leaving the paycheck economy) is doing to the macro picture. The reason the 10 year treasury is under 2% today is that "windfall money" in the system is being "forced into savings"!

This is because our entire economy is a house of cards; there's just too damn much money at the top. See my first post above, LOL (housing is a significant source of this imbalance but it's probably not the long pole in the tent).