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‘Information Is Stimulus, Confusion Is Contraction’

Another Stephen Waldman post, another brilliant paragraph for me to quote.

A housing boom, any kind of boom, is attended by an increase in certainty. Information is stimulus, confusion is contraction. A bust occurs when the market is unsure of everything, when market participants perceive better risk-adjusted return in holding government securities (or supply-inelastic commodities) than in financing real investment. Sectoral shifts per se have no clear implication with respect to variables like employment and output. But "hangovers" do happen, because powerful booms are periods when market participants make consequential decisions with great swagger and confidence, and busts are when we learn that despite their certainty, they were wrong. They are left not only impoverished and burdened by debt, but bereft of confidence in their ability to evaluate new opportunities.

By Ezra Klein  |  October 12, 2009; 5:47 PM ET
 
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Comments

and people put their money under the Serta (Sealey is now bankrupt). Or hold it in cash. This is a perfect formula for devaluation and monetary contraction, when folks can't find a safe haven for their money. Even Treasury bills are no longer safe, because they are built on a house of cards with foundations in unsustainable debt, extend and pretend policy-making, and banker greed and hidden liabilities.

Posted by: JimPortlandOR | October 12, 2009 6:02 PM | Report abuse

> A housing boom, any kind of boom, is
> attended by an increase in certainty.
> Information is stimulus, confusion is
> contraction. A bust occurs when the
> market is unsure of everything,

From 2003-2006 I asked my California coworkers repeatedly who was going to buy all the $400k, 1100 sq ft townhomes being built in the deserts of the Inland Empire - since I couldn't see anything in the regional population or income statistics that would support such a boom. They could never answer, and neither could any "expert" I ever asked. Come 2008 and we find out that there _wasn't_ anyone with the income to buy those houses. So where exactly was the certainty during the 2002-2007 California FIRE boom?

sPh

Posted by: sphealey | October 12, 2009 7:26 PM | Report abuse

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