One suggested cause of the Great Depression (Recession 2007)

Discussion in 'Economics' started by eagle488, Dec 8, 2006.

  1. Debt

    Macroeconomists, including the current chairman of the U.S. Federal Reserve Bank Ben Bernanke, have revived the debt-deflation view of the Great Depression originated by Arthur Cecil Pigou and Irving Fisher. In the 1920s, in the U.S. the widespread use of the home mortgage and credit purchases of automobiles and furniture boosted spending but created consumer debt. People who were deeply in debt when a price deflation occurred were in serious trouble—even if they kept their jobs, they risked default. They drastically cut current spending to keep up time payments, thus lowering demand for new products.

    Furthermore, the debt became heavier, because prices and incomes fell 20–50%, but the debts remained at the same dollar amount. With future profits looking poor, capital investment slowed or completely ceased. In the face of bad loans and worsening future prospects, banks became more conservative in lending. They built up their capital reserves, which intensified the deflationary pressures. The vicious cycle developed and the downward spiral accelerated. This kind of self-aggravating process may have turned a 1930 recession into a 1933 depression
  2. Deflation also causes real minimum wages to rise.
  3. In 1999, I pulled into a McDonalds drive through for breakfast and payed about 4 dollars for one of their meals. In 2004, I pulled into the same McDonalds. 3 dollars that year. I pull in today, $7????
  4. Daal


    The bail out might be different this time. bennie will have to turn on the printing press like mad if he wants to help people paying their mortgages. A widespread default might start a banking crisis like in japan
  5. Quote: The rich now have all of the money and they are not going to spend it.

    My Mother 1937.
  6. VictorS


    sounds like you are eating like a pig now that you are older.
  7. Eagle,

    Do you have any good way of accessing Irving Fisher's Booms and Depressions book? Only place I can find it is at a major research library or for $2000 as a rare book on

    Has anyone out there found this oop book on deja vu or project gutenberg, etc...? PM me if you don't want to post.
  8. Your Mom nailed it. Concentration of wealth is a cardinal sign of impending depression.
  9. This isn't much help to the unemployed.

  10. Hansel H. Thanks for that quote.

    I thought it was worthwhile when I posted it.
    #10     Dec 21, 2007