Economics of recessions/depressions

[CFC]

Reading the "Northern Rock" and "In this together" thread I have some questions for the financially savvy regarding recessions.

1. What happens to the money supply during an economic downturn, presumably money is not physically destroyed, so what happens to it? I assume more of it is concentrated into the hands of the rich, would this be so?

2. What are the biggest catalysts/predictors for a recession?

3. Instead of a boom/bust cycle why is the market not more stable, in other words why do we go through periods of relative
affluence followed by the polar opposite? You always hear the argument in favour of pure capitalism "the market corrects itself", well why does it take economic ruination for things to even out?

4. Is there anything that would suggest recessions are engineered? Not to propose a conspiracy theory but it strikes me that the ultra rich have much greater leverage during a recession than they do in times of prosperity?

[Leicester Fan]

3. Instead of a boom/bust cycle why is the market not more stable, in other words why do we go through periods of relative
affluence followed by the polar opposite? You always hear the argument in favour of pure capitalism "the market corrects itself", well why does it take economic ruination for things to even out?


I'm not claiming to be an economic expert. I only did O level economics and that was a long time ago.

Boom and bust is caused by confidence, human nature if you like. When things are going well everybody wants to get in on the act, people throw money at certain investments and ,as with any supply and demand, the higher the demand the higher the price rises , not necessarily in line with it's true value. Investments and profits go up and everyone is happy.

Eventually some of these investments fail or some people realise that the prices paid have become unsustainable and people try to get out of the market by selling up their investments. As demand falls so does the prices (the market correcting itself)and other people realise that they should sell up, sometimes at a loss, and stop investing anymore.A vicious circle of low investment, low prices and panic effect every part of the economy.

Keynesian economics, which Labour claim to believe in, says you should cut public spending during a boom to dampen down demand, repay govt debt and lead to only steady growth. And increase spending, using borrowing if necessary, during a recession to increase demand.

Unfortunately, as we now know, Gordon Brown increased spending and borrowing during the boom leading to a bigger boom, and therefore a bigger bust and didn't leave us with any money to pump into the economy now that the bust is here.

I accept that that is a simplistic and poorly written explanation of what happened and I'm sure someone will say I'm talking b^lls.

[CFC]

Thanks Leicester Fan. So really everything is based on momentum in the boom bust cycle, if things are either bad or good they tend to snowball further in the whatever direction their heading?

Also are you from Leicester? Many years ago I used to live there and went to a fair few games at Welford road and Filbert street. Stil follow the Tigers results tbh.

[danhibees1875]

The great crash 1929 by john kenneth galbraith can give you decent answers to your questions and a good telling of the boom in the mid-20s, followed by the collapse. :)

[Leicester Fan]

Also are you from Leicester? Many years ago I used to live there and went to a fair few games at Welford road and Filbert street. Stil follow the Tigers results tbh.

Yes, I went to my first Tigers game this season, but I spent most of the game in the bar. Rugby's not really my game.:aok:

[CFC]

Thanks dan for the recommendation, Ill try and get a copy.Leicester fan - I wont ask you what the score was rhen :-)

[ginger_rice]

I'm not claiming to be an economic expert. I only did O level economics and that was a long time ago.

Boom and bust is caused by confidence, human nature if you like. When things are going well everybody wants to get in on the act, people throw money at certain investments and ,as with any supply and demand, the higher the demand the higher the price rises , not necessarily in line with it's true value. Investments and profits go up and everyone is happy.

Eventually some of these investments fail or some people realise that the prices paid have become unsustainable and people try to get out of the market by selling up their investments. As demand falls so does the prices (the market correcting itself)and other people realise that they should sell up, sometimes at a loss, and stop investing anymore.A vicious circle of low investment, low prices and panic effect every part of the economy.

Keynesian economics, which Labour claim to believe in, says you should cut public spending during a boom to dampen down demand, repay govt debt and lead to only steady growth. And increase spending, using borrowing if necessary, during a recession to increase demand.

Unfortunately, as we now know, Gordon Brown increased spending and borrowing during the boom leading to a bigger boom, and therefore a bigger bust and didn't leave us with any money to pump into the economy now that the bust is here.

I accept that that is a simplistic and poorly written explanation of what happened and I'm sure someone will say I'm talking b^lls.


That mate is a great answer, "economics for dummies" :thumbsup:


Can you forward it to George Osbourne?

[IWasThere2016]

I'm not claiming to be an economic expert. I only did O level economics and that was a long time ago.

Boom and bust is caused by confidence, human nature if you like. When things are going well everybody wants to get in on the act, people throw money at certain investments and ,as with any supply and demand, the higher the demand the higher the price rises , not necessarily in line with it's true value. Investments and profits go up and everyone is happy.

Eventually some of these investments fail or some people realise that the prices paid have become unsustainable and people try to get out of the market by selling up their investments. As demand falls so does the prices (the market correcting itself)and other people realise that they should sell up, sometimes at a loss, and stop investing anymore.A vicious circle of low investment, low prices and panic effect every part of the economy.

Keynesian economics, which Labour claim to believe in, says you should cut public spending during a boom to dampen down demand, repay govt debt and lead to only steady growth. And increase spending, using borrowing if necessary, during a recession to increase demand.

Unfortunately, as we now know, Gordon Brown increased spending and borrowing during the boom leading to a bigger boom, and therefore a bigger bust and didn't leave us with any money to pump into the economy now that the bust is here.

I accept that that is a simplistic and poorly written explanation of what happened and I'm sure someone will say I'm talking b^lls.

Nowt wrong with that explanation.