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  • Another Look at Krugman's 'Hangover Theory' [View article]
    Recesssions are caused by two things:

    1) Business and personal income streams are interdependent and once any of them start to contract (which they do periodically as buying appetites get sated - such as what just happened in real estate), then various connected streams of income are affected.

    2) People, whether in business or personal, when they see their streams of income contract, get fearful and cut spending. This compounds the contraction.

    Recessions end when people feel that they are no longer at imminent risk.

    The foundations for recessions start when speculators pour too much borrowed money into any particular market. Eventually, as what just happened in real estate, that market reaches its saturation point and some of the money must bleed off.
    Dec 30 13:36 pm |Rating: +2 0
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