Psychology and Recessions

Amid all the discussions about the economy the media constantly overlook the role of psychology.

Poor psychology is primarily what gets us into recessions once the basic excesses take hold, and eventually, it is what gets us out. Certainly, psychology gets us into those excesses, which produce booms that cause busts. It helps foster those ever-downward economic spirals.

There was certainly a subprime mortgage mess. But that was only accentuated by a jittery market that affected the pricing of those assets.

At the time, we were in the midst of a heated presidential election campaign. Democrats wanting to get into office, painted an even bleaker economic picture. They had been hollering “Hoover Economy” even during the economic boom.

With the downturn, the political psychological efforts succeeded, especially aggravated when banking asset values dropped, by forced mark-to-market pricing. (I have often commented on this.)

Much of what ACTUALLY happens is our PERCEIVED outlook on the economy’s future. The lack of proper media explanation adds to this.