headline of a Forbes Op/Ed piece. American households have been hit hard during recent years, however, it isn't that the recession caused a 40% reduction in wealth. What must be stressed is the bubble is what caused the destruction of wealth. The increased values we saw prior to the bubble popping were largely illusory, that explains part of the reduction of wealth. As most Americans largest asset is their homes. But what about money that wasn't invested into residential real estate?
Well on of the nasty effects of bubbles is that they are rarely self contained, and in instances where the government becomes heavily involved, it can cause a major spill over effect. Businesses that ordinarily were not involve in real estate got involved. And even if a business wasn't involved with real estate there was a good chance it suffered a seven degrees of Kevin Bacon separation. Industries like insurance, banking, and construction are obvious. But what about food services? A lot of constructing workers eat out while on the job site. Or advertising agencies? Don't forget shipping companies that would haul those materials. The list goes on. Everything is interconnected in a vast web that is too complex and interconnected to accurately see how each piece effects the other, its one of the reasons why I rejected Keynesian economics.
What this means though is that while we often call the bubble a real estate is in fact an economic bubble. Everything was ballooned out of proportion. Yes there were some sound investments to be made during this period, however, it would have been very difficult to separate the money pits from the sound investments. What this means is that much of the money that was invested to build net worth was vaporized on contact. The moment that money left the bank account it no longer existed because it was thrown after a bad investment. The 40% drop we are seeing now is only the after affect, like the thunderclap after a lightening strike.
- Cogitans Iuvenis
- Real name is Kevin Daniels. I have long studied history and have an interest in geopolitics, economics, finance and politics. A few years ago discovered libertarianism. I am a constitutionalist libertarian with a conservative worldview. Word of warning. If you can't handle opinions that aren't rooted in the pc-progressive ideology that is permeated by our educational instutions and popular media then this blog is not for you.
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