Home > Uncategorized > 10 years after

10 years after

from David Ruccio

crisis_timeline

The crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought — Rudi Dornbusch

Last week, a wide variety of U.S. media (including the Wall Street Journal and USA Today) marked what they considered to be the ten-year anniversary of the beginning of the global economic crisis—from which we still haven’t recovered. 

The event in question, which occurred on 9 August 2007, was the announcement by international banking group BNP Paribas that, because their fund managers could not calculate a reliable net asset value of three mutual funds, they were suspending redemptions.

But, as I explain to my students, “Beware the appearance of precision!” For example, the more numbers after the decimal point (2.9, 2.93, 2.926, etc.), the more real and precise the number appears to be. But such a number is only ever an estimate, a best guess, about what is going on (whether it be the growth of output or the increase in new home sales).

The same holds for dates. It would be odd to choose a particular day ten years ago that, among all the possible causes and precipitating events, put the U.S. and world economies on the road to the Second Great Depression. That would be like saying World War I was caused on 28 June 1914, when Yugoslav nationalist Gavrilo Princip assassinated Archduke Franz Ferdinand of Austria. Or that the first Great Depression began on Black Thursday, 24 October 1929.

fredgraph

Given the centrality of housing sales, mortgages, and mortgage-backed securities in creating the fragility of the financial sector, we could just as easily choose July 2005 (when, as in the green line in the chart above, new one-family house sales peaked), January 2006 (when, as in the blue line, new privately owned housing units starts peaked), or February 2007 (when the Case-Shiller home price index, the red line, started its slide).

fredgraph (1)

Or, alternatively, we could choose the third quarter of 2006, when the U.S. corporate profit share (before taxes and without adjustments) reached its peak, at almost 12 percent of national income. After that, it began to fall, and the decisions of capitalists dragged the entire economy to the brink of disaster.

fredgraph (2)

Or the year 2005, when the profits of the financial and insurance sector were at their highest level—at $158.3 trillion—and then began to decline. Then, of course, it was bailed out after falling into negative territory in 2008.

graph_dl

Or, given the centrality of inequality in creating the conditions for the crash, we can go all the way back to 1980, when the share of income going to the top 1 percent was “only” 10.7 percent—since after that it started to rise, reaching an astounding 20.6 percent in 2006.

Those are all possible dates, some of course more precise than others.

What is important is each one of those indicators gives us a sense of how the normal workings of capitalism—in housing, finance and insurance, corporate profits, and the distribution of income—created, together and over time, the conditions for the most severe set of crises since the first Great Depression. And now, as a result of the crash and the nature of the recovery, all of them have been restored.

Thus creating the conditions for the next crash to occur, ten years after the last one.

  1. Alejandro Nadal
    August 18, 2017 at 5:33 pm

    Good post. It’s like saying that the catastrophe in Chernobyl started the night of April 26 1986. It is perhaps more accurate to say it started on the drawing board of the engineers designing light water graphite moderated reactor (Unit number four in Chernobyl) back in the seventies.

  2. August 18, 2017 at 7:46 pm

    Good post, but what bout the external deficit (surplus for China) that origines the capital movements that were the financial base of the house bubble?

  3. August 18, 2017 at 10:15 pm

    “The crisis takes a much longer time coming than you think, and then it happens much faster than you would have thought — Rudi Dornbusch”
    There is a very good math reason for that. Everything is riding on an exponential, a function that increases at a rate equal to its value…the bigger it gets, the faster it moves!

  4. Helge Nome
    August 19, 2017 at 4:51 pm

    The .!% thrives on financial crashes,

  5. August 22, 2017 at 4:28 pm

    Fantastic, great work! “But, as I explain to my students, “Beware the appearance of precision!”(David Ruccio).
    Please add, “Believe nothing merely because you have been told it…But whatsoever, after due examination and analysis,you find to be kind, conducive to the good, the benefit,the welfare of all beings – that doctrine believe and cling to,and take it as your guide.”(Buddha)
    Thank you for your great “examination and analysis”.
    This is on the timing of the catastrophe; would you investigate the cause?
    IMHO, Based upon an examination and analysis of Soddy’s “Role of Money” these ‘systemic failures’ are identified as a result of “Greshams Law”.
    The massive amounts of “Fictitious Money” (bad money) reach a point where there is no longer any “Real Money” (good money) left in circulation to make it redeemable.
    There is presently empirical evidence banks create money ‘out of thin air’
    as Soddy stated ..from nothing you can only get nothing.

  1. No trackbacks yet.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s