USA "Playing With Fire"... Could Repeat 2008 Crisis

[Economy 52,958]

http://www.businessinsider.com/chris-rupkey-on-initial-claims-data-2015-7

 

Chris Rupkey, Chief financial at a Corporation claims the US is going on a very dangerous pathy keeping interest rates at 0% that could repeat the bubbles and imbalances that caused the 2008 crisis

 

While 0% interest rates are not harmful when the economy is really weak, problems can arise if interest rates do not go up as the economy recovers...

 

Once an economy strengthens, higher rates are necessairy to keep inflation under control. Higher interest rates also prevent people from borrowing too much money in better economic times and prevents the economy from over-heating (unsustainable growth) or creating bubbles.

 

With jobless claims the lowest since 1973 last month, unemployment down to 5.3% and solid growth seen in housing market, interest rates still at 0% could set up problems further down the road.

[Bad Bromance 5,809]

Let's hope nothing bad like in 2008 happens again.  I do agree that interest rates need to go up when an economy is recovering to avoid inflation but for some reason the FED isn't raising the interest rates.  SMH.

[Economy 52,958]

Let's hope nothing bad like in 2008 happens again.  I do agree that interest rates need to go up when an economy is recovering to avoid inflation but for some reason the FED isn't raising the interest rates.  SMH.

They are afraid it will derail the economic recovery

 

I mean i get the concerns but they should worry about the economy over-heating too... because once the economy starts to over-heat, you do not see the inflation right away, like in most things in economics theres a lag... and once it shows up they may be forced to rise it quickly to prevent it and that too will have a lag

 

I dont know if you know how it works, but basically as the economy recovers demand for credit rises... demand for goods also rises as do wages...

 

if rates dont go up, people will borrow too much money during good economic times, flood economy with new currency, raise demand for goods at a faster rate than manufacturers can invest and expand to keep up with demand

 

More currency = inflation

more demand for goods = inflation

 

economic growth is good, but it must occur at a pace that wont develop bubbles... it must occur with gained wages and icreased productivity gains... not artificial demand from credit

[Bad Bromance 5,809]

They are afraid it will derail the economic recovery

 

I mean i get the concerns but they should worry about the economy over-heating too... because once the economy starts to over-heat, you do not see the inflation right away, like in most things in economics theres a lag... and once it shows up they may be forced to rise it quickly to prevent it and that too will have a lag

 

I dont know if you know how it works, but basically as the economy recovers demand for credit rises... demand for goods also rises as do wages...

 

if rates dont go up, people will borrow too much money during good economic times, flood economy with new currency, raise demand for goods at a faster rate than manufacturers can invest and expand to keep up with demand

 

More currency = inflation

more demand for goods = inflation

 

economic growth is good, but it must occur at a pace that wont develop bubbles... it must occur with gained wages and icreased productivity gains... not artificial demand from credit

Yes, I totally understand how the economy works.  I am a Business major with a minor concentration in Economics.  The points you have raised are all valid so I don't understand why the U.S. government is dragging their feet in correcting the impending problem.

[Economy 52,958]

Yes, I totally understand how the economy works.  I am a Business major with a minor concentration in Economics.  The points you have raised are all valid so I don't understand why the U.S. government is dragging their feet in correcting the impending problem.

exactly!

 

i mean, if consumer spending rises gradually, it gives businesses more money to expand, create more jobs, raise wages etc and all is good...

 

if people start borrowing and consumer spending rises too quickly... manufacturers and service providers dont have time to keep up with demand so they raise prices... you get inflation which further destroys people income before you get a chance to create real solid job growth and real investment

 

but yeah if u understand how it works i dont need to explain it but yeah...

 

In 2008 and for some time after... consumer confidence was low, banks werent lending much so interest rates might as well be low... if people arent borrowing much you cant create a credit bubble so might as well lower peoples interest payments so they have more money in their pocket... and help prevent deflation and make deleveraging process easier

 

but now that people are confident enough to do stupid things, credit is flwoing again, and the economy growing, its certainly a lot more dangerous now

[Bad Bromance 5,809]

I just hope we don't have another economic crisis like we did in 2008.  It's not likely that we will since the conditions are very different now than they were back then but I guess anything can happen.

[Economy 52,958]

I just hope we don't have another economic crisis like we did in 2008.  It's not likely that we will since the conditions are very different now than they were back then but I guess anything can happen.

i think it can be just as bad...

 

on the one hand there more financial regulation now... Also this recovery has had more substance to it than the 2002 to 2006 boom. It hasnt been all housing and consumer spending... The US has had real growth in energy sector and manufacturing making this recovery more balanced than the mast (although if rates take too long i still say many imbalances of the same type can build up)

 

But on the otherhand the Government has less means to fight a deep recession this time should it occur because it is too leveraged to run deficits equivalent to 9% of GdP as it did the first years of the crisis!!!!

 

If you reallythink about it, the US never stopped being a Nation with an account deficit in which is consumes more than produces... So debt is still accumulating...

 

when consumers stopped spending in 2008, the Government with its over $1 trillion annual deficits with all this stimulus was essentially doing the soending for the consumer to keep economy alive while people were deleveraging and rebuilding their finances

 

in essance, in an indirect way, debt was transfered from the consumer to the Government, but it still exists within America...

 

The Government recapitalized an economy dried of liquidity when it did the spending for the consumer and thus indirectly taking over consumer debt. Maybe that wasnt their intention but essentially its what happened  

[TiphEret 1,320]

It might sound silly but what is exactly a bubble? 

[Economy 52,958]

It might sound silly but what is exactly a bubble? 

u know how u can blow a bubble and eventually it will pop because it doesnt stay stable?

 

In economics we use that a--logy a lot to describe a major imbalance.

 

ill give you one example, the US housing market crashed because there was a housing bubble that burst! For years interest rates were low and there was insurance to cover people without downpayments so prices surged, demand for housing surged, and construction boomed...

 

With so much construction (at a faster pace than population growth) there started to be an oversupply and supply and demand didnt justify those prices anymore but because of low rates and speculation bidding wars continued driving real estate unsustainably high...

 

in 2005-2006 rates rose quite a bit and all of a sudden the bubble couldnt be sustained any leading to an immediate slowdown in price appreciation and construction... By 2007 real estate had cooled big time. By 2008 we know what happened

 

thats just 1 example... Any overheating or unsustainable growth creating an imbalance is a bubble

[TiphEret 1,320]

u know how u can blow a bubble and eventually it will pop because it doesnt stay stable?

 

In economics we use that a--logy a lot to describe a major imbalance.

 

ill give you one example, the US housing market crashed because there was a housing bubble that burst! For years interest rates were low and there was insurance to cover people without downpayments so prices surged, demand for housing surged, and construction boomed...

 

With so much construction (at a faster pace than population growth) there started to be an oversupply and supply and demand didnt justify those prices anymore but because of low rates and speculation bidding wars continued driving real estate unsustainably high...

 

in 2005-2006 rates rose quite a bit and all of a sudden the bubble couldnt be sustained any leading to an immediate slowdown in price appreciation and construction... By 2007 real estate had cooled big time. By 2008 we know what happened

 

thats just 1 example... Any overheating or unsustainable growth creating an imbalance is a bubble

Thanks :) when I read you I feel I could take a course or two in economy it wouldnt hurt XD

[Rome 176]

Another crisis 

Anyways, Economy I would love to know and understand economy as good as you do 

[Woolfsmck 2,763]

I think that changes in the credit market and bank capitalization will prevent another 2008 event ..  That was a complete ship it down of credit and lending between banks which spilled over to the GP.  No one was c

qualified to buy anything for a while.  Only cash transactions.   

Market bubbles may cause problems in one sector or another  true .   I'm worried about the medical system right now since the new rules clearly mandate revenue without any checks to control costs.

[Economy 52,958]

I think that changes in the credit market and bank capitalization will prevent another 2008 event ..  That was a complete ship it down of credit and lending between banks which spilled over to the GP.  No one was c

qualified to buy anything for a while.  Only cash transactions.   

Market bubbles may cause problems in one sector or another  true .   I'm worried about the medical system right now since the new rules clearly mandate revenue without any checks to control costs.

to some degree... perhaps not as severe

 

but whether a bubble forms because of bad rules/regulations or because of low interest rates, or speculation doesnt matter... regardless of what caused a bubble, if theres an imbalance, it can cause serious issues

 

of course something has to trigger bubbles to pop... sometimes gradual corrections do occur

 

So far Canada's big housing bubble and big credit bubble remains undisturbed even tho they been saying its about to burst for the past 5 years and nothing ever happens