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> Their theory of the business cycle is the reason they successfully predict every crisis to the tee (except for timing, no one can do that), while other econom
by IAmGraydon 7y ago
> Their theory of the business cycle is the reason they successfully predict every crisis to the tee (except for timing, no one can do that), while other economists are just blown away in surprise that it even happened.
A prediction without timing is no prediction at all.
- rjtavares 7y agoAlso, I fail to see how an economic theory can predict a depression caused by a pandemic...
- oDot 7y agoThis crisis was not caused by the Corona virus. It is only the pin that burst a bubble that was already there, and if no virus would have happened, something else would have burst it. Austrians see the depression as a necessary correction, and the bubble as a problem. I actually sat down for a few hours to calculate what would have happened if this pandemic happened in the 50s, and no one could work (especially true since there was no internet). Seems like people saved enough for a year at home, on average. Today people are so levered up not only do they not have savings, they have to pay back debt.
- postingawayonhn 7y agoThis pandemic is more like a cruise missile than a pin. I've been saying for a few years that a recession is coming but I'm not going to pretend I thought it would be started by an event like this. Recessions are simply a natural part of the business cycle and after such a long 'boom' period there was certain to be one eventually.
- IAmGraydon 7y agoWe are de facto not in a bubble. Market growth over the last decade has been steady and healthy. A long term bull market does not define a bubble.
- nickysielicki 7y ago> A long term bull market does not define a bubble. No, but inverted yield curves do.
- rjtavares 7y agoThe only thing that defines a bubble is the post fact realization that it burst.
- oDot 7y agoA P/E ratio of 94.33 for Amazon is surely a bubble.
- lazyjones 7y agoWhy? Has Amazon stopped growing, does it have 100% market share, are competitors closing up?
- jandrewrogers 7y agoP/E ratio is only meaningful for companies with little or no revenue growth. For companies with very strong revenue growth, like Amazon, revenue growth is financed with earnings, which creates a misleadingly high P/E ratio. Investors know this. For these companies, it is more useful to look at metrics like market cap/revenue to determine if they are overpriced, which at 3-4x for Amazon is in a very healthy range. Simple metrics like P/E ratio tell you little about the health of a company when taken out of context; a low P/E ratio is often a sign of a failing company. As more of the largest companies in the market exhibit strong revenue growth, it drives the P/E ratio of the broader market higher without implying anything about the underlying equities.
- fbonetti 7y agoThe Fed artificially lowered the interbank rate to zero percent for ~7 years after 2008, bought other treasuries across the yield curve, and bought trillions in mortgage backed securities. This created an environment that disincentivized saving and encouraged borrowing for both individuals and businesses alike. The market growth over the past 10 years was completely fueled by this artificially cheap credit. The economy was already extremely fragile before the coronavirus hit due to how over leveraged everyone was.
- alecmg 7y agoLess a pin to a bubble, more a wrecking ball to a house made of sticks Effectively shutting down more than half of all business is slightly more than bursting a bubble. It is world war II scale event, with exception that there is no war that could take all the unemployed hands to the front and to producing weapons.
- lazyjones 7y ago> Effectively shutting down more than half of all business is slightly more than bursting a bubble. It is world war II scale event, But let's not forget that this wasn't caused by the virus itelf, it was consciously decided by politicians to trade an (unknown in magnitude) risk for a huge recession.
- Nasrudith 7y agoThat seems a bit semantic given that even cartel run Favellas quarantined and they are money over life. It is a bit "I didn't murder the person I kidnapped, they committed suicide." Technically true but the responsibility is the same as if they had.
- lazyjones 7y agoAre you seriously using (some) Favellas as a benchmark for reasonable assessment of a pandemic? Some people are scared. It won't affect the inherent risk associated with the virus.
- dangus 7y agoThere’s no way we can assume that the coronavirus was a pin to a bubble. Look at the unemployment claims chart. This has never happened before in the entire 20th century. That’s not a pin. That’s a collapse in employment. It doesn’t really matter whether or not people have savings. Economic recessions don’t mean “people don’t have their savings anymore.” They’re a reduction in economic activity. That doesn’t have to happen because people are literally out of money, it can happen because people are unwilling to spend as much as they used to. Take the best-off person right now as an example. They still have a job, working from home. They have 6-12 months of emergency fund. Despite all this, are they going to buy anything but essentials right now? Plus, in many cases, they don’t have a choice. They’re not allowed to pay for their gym membership. They’re not allowed to take dance classes. They’re not allowed to go on vacation. They’re sitting at home buying groceries and nothing else just like the person with no savings.
- take_a_breath 7y ago==Seems like people saved enough for a year at home, on average. Today people are so levered up not only do they not have savings, they have to pay back debt.== Odd that you don’t mention wages. Seems like middle-income wages are stagnant while housing, healthcare and education get more and more expensive. Not hard to see how that would cut into household budgets and encourage debt.
- toshk 7y agoIsn't that the whole essence's of Nassim's Taleb work? He actually makes the opposite claim, that a model that doesn't takes extreme events into the equation is not worth anything at all.
- oDot 7y agoIt definitely is. The Austrians are very prepared for this crisis, and it seems like it was useful to some people shorting in 2006-2008.
- ace32229 7y agoThe Austrian school predicted a disease-related economic crisis?
- oDot 7y agoThe Corona virus is just a pin to a bubble that's there for years. See my other comment explaining this.
- IAmGraydon 7y agoIn what ways are they more prepared for this crisis than anyone else?
- oDot 7y agoMost Austrians I've heard see this to be a dollar crisis: US has huge debt -> No US politician will ever default on it -> They will print money to pay it -> Dollar loses value. That's fairly simplified but I hope you get the point. Since they see this as a dollar crisis, they are busy buying gold, silver, gold stocks, and assets in countries that have dollar-denominated debt. I'm going to add my 2 cents here and say that in my opinion, if the Corona situation will be solved quickly enough, or at least be perceived to be solved by the public, a rush of optimism will allow the fed to inflate the bubble and postpone (and worsen) the depression.
- sametmax 7y agoI predict it will rain after a sunny day. Some day.
- oDot 7y agoThen you should buy umbrellas, and not listen to people saying it'll be sunny forever.
- IAmGraydon 7y agoNo one sane thinks it will be sunny forever, and there is great economic cost in carrying around a bunch of umbrellas when the sun is shining overhead.
- state_less 7y ago> The only school that has any explanation for this is the Austrian School of Economics. I doubt it’s the only ‘school’ that has an explanation. That there are cycles in the economy isn’t a very strong statement. Nor does it seem to apply here because this is a different cause than one underpinning a typical business cycle. Until this virus is wrestled to the ground somehow (e.g. distancing, sterilization, vaccine, herd immunity, etc...), we’ll continue to see mitigating effects which distort the picture of normalcy pre-2020.