Today the US stock market set a new record for one day fall, in points (not in percentage, I'd think). Here's a comment from Farmann. (And a video article.) (Hans also points to this site, mises.org, which seems interesting.)
I never understood economic crashes. We still have the same people, knowledge, machinery, houses, and factories we did a year ago, so how can the economy suddenly be a lot worse?
I guess the crux is credit. But it still does not make sense to me.
I also guess that if economic crashes don't make sense, then economic booms don't make sense either. Like I wrote in the updated money article, in the wider picture you can't expect any growth larger than 5%. And it'd be less if not for inflation. And in the smaller picture you can get higher growth, but it depends upon luck.
And it's simply because you can only build factories and educate people so fast. Faster growth is based on credit and optimism, and those always crash sooner or later when they have stretched too far from reality, like right now.
Here's an interesting article.
"For many years, the money supply in the form of banknotes and deposits (M3) has grown at an average rate of over ten percent per year (which means that every six or seven years the total volume of money circulating in the world has doubled)."
Wow!!! This explains a lot to me! Anybody with common sense can see that this is just like having water gun fights with gasoline and then having a nice relaxed cigarette after. And then the government is blaming the crisis on "the greed of investors"...
"Economic theory teaches us that, unfortunately, artificial credit expansion and the (fiduciary) inflation of media of exchange offer no shortcut to stable and sustained economic development, no way of avoiding the necessary sacrifice and discipline behind all voluntary saving. (In fact, particularly in the United States, voluntary saving has not only failed to increase, but in some years has even fallen to a negative rate.)"
On The West Wing there was an astute observation: the president's aide asked the president: "but don't you want people to save up?" The president said: "Yes, but we want them to do it while the other guy is president."
Because spending booms the economy in the short term, and saving helps it in the long term. And how can we get re-elected if we think in the long term?
"Indeed, the artificial expansion of credit and money is never more than a short-term solution, and often not even that."
In the SF novel Battlefield Earth (which was a hundred times better than the movie based on it, trust me) near the end they have to save the economy of the entire universe (!). The way they do it is to extend new credit to everybody, secured by new planets being discovered. And it is projected that it will become a big problem when they run out of new planets far in the future. ... And yet it's not even speculated that you could have a healthy economy which is not based on credit! That's insane, it's like saying you can't have a good personal economy if you don't have any debt! (And some people even do say that, I remember my former brother-in-law who is a high-ranking insurance executive say to my mother that it was nuts having so little debt in her house.)