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Economist: Housing bubble caused Great Depression, too
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| Contributor | kal |
| Last Edited | kal Jun 07, 2009 07:40am |
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| Category | General |
| News Date | Sunday, June 7, 2009 01:00:00 PM UTC0:0 |
| Description | Nobel Prize-winning economist Vernon Smith draws some disturbing parallels between the events that led up to the Great Depression of the 1930s and the severe economic slump of today.
Smith, professor of economics and law at Chapman University, won his Nobel in 2002. He spoke Friday, June 5, before a standing-room-only crowd in Fraser Hall at Western Washington University.
Most people think of the Great Depression as originating in the stock market crash of 1929. But Smith's research indicates that the 1929 crash was itself the result of an earlier collapse in the boom housing market during the Roaring '20s.
He argued that stock market crashes in themselves are not enough to drag the whole economy under: The collapse of the dot.com stock bubble of the 1990s, painful though it was, did not lead to wider economic collapse.
But in the 1920s, and again in the first few years of the 21st century, there was a rapid expansion in housing construction, and a rapid increase in household debt as more people borrowed more money to get their own homes. In both periods, housing construction and investment collapsed even more rapidly once the phenomenon peaked, Smith's data showed. Only then - in both cases - did stock prices fall off a cliff as concerns about the financial system began to mount.
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