Economic Depression is not what it used to be

Economic depression is not what it used to be. Some people are predicting doom and gloom, fire and brimstone after the latest market downturn. But market downturn is not economic depression. Prices of goods and houses remain high.

One thing that used to happen is that high interest rates came with high stock and high property prices. The operating principle then was that high interest rate will discourage people from buying and hence bring down prices. But interest rates of 12% was more than 20 years ago and much more common then.

Since then interest rates has been on the low end. One thing governments learn is that fast interest rate increase delivers shock to the system and hence sudden depression. It is in governments interest to avoid such a thing.

Which is why prices remain high as most people are still able to pay their installments without interest rate doubling from 6% to 12%. Economic depression is not what it used to be. Neither are bargains and fire sales.

Why I’m talking about this is that some people are still thinking about investing when the market drops about XX%. But the market never does drop that much. One thing that could be happening as well is more people practicing Buy and Hold. Without extreme interest rates, the imagined depression may not happen and the imagined market entry never comes.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

w

Connecting to %s