Why The Economy Failed

Conventional wisdom says that the recession was caused by the bursting of the housing bubble. That indeed appears to be the proximate cause, but some people have tried to look deeper for an underlying cause. Many, including yours truly, have argued that the underlying cause was too much debt. That still seems true to me, but it is not a satisfying answer. Human nature does not change, so why should we suddenly decide to become heavily in debt? Perhaps the onion needs to be peeled further. Robert Bryce has a suggestion:

In hindsight, the phenomena of early retirement, the “Freedom 55” cohort, may mean that a big enough early wave of retirees has hit. The peak of these early retirees is happening now — and may be the underlying cause of the timing in the market downturn. The retiree selling pressure, who must turn paper value into cash, is further catalyzed by over investment in housing and by highly leveraged financial instruments. The aging of the boomers is going to lead to increasing numbers of retirees over the next decade or so, this pressure will likely lead to a softer recovery in the housing and stock markets then we would like, or a secondary recession in the near future.

via Boomer Bust – TCS Daily.

A demographic root cause is a good fit with other things I see to be true. If we Boomers went from buying houses to selling houses, that would certainly turn the housing market on it’s head. Apparently we did. What’s disturbing is that such actions probably involved mostly the early boomers. The bulk of the impact may be yet to come.

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