Ingredients for the 2008 Depression

'Why is this happening?' is a question that will defy a rational explanation. Our previous post suggested because the Depression is an unstoppable force, but that is hardly satisfying to the inquiring intellect. What are the ingredients that were thrown into the economic pot that triggered this Depression? There has been a bit of speculation on this subject, and as the Depression becomes increasingly self-evident, the attempts to rationalise it will become abundant, and politically motivated. One can never know for sure, but we shall offer our opinion of what the ingredients have been, both in this post and future ones.

Here is today's list: falling real median wages in the USA; too much debt just about everywhere; a speculative mania in housing in most countries; a speculative mania in housing -related investment securities; a speculative mania in securities backed by consumer debt; a speculative mania in exotic investment vehicles such as bond insurance and credit default swaps; a speculative mania in companies which separate speculators from their money such as mutual funds and hedge funds; corruption and mismanagement in financial institutions, their auditors, and their regulators. To this we could add some factors that are probably be at work: fiat (i.e. "paper") money; resource depletion issues; consumption of previously-formed capital, including social capital.

Every item in this list has quite a story behind it, and though they may seem abstract, their effects are most definitely present in your life. In future posts we will touch upon all these ingredients (and more). If you deem any to require expedited discussion, please leave a comment.