Quote from: EhVedadoOAnonimato on October 06, 2011, 03:17:35 PM

Quote from: johnyj on October 06, 2011, 02:04:54 PM

There is one thing always confused me: People always say that financial crisis destroyed trillions dollar worth of wealth

Based on general economy definition, only consumable goods and services are wealth, money is just a medium of exchange. So, if a house used to worth 5 million now worths 3 million, the actual wealth (the house) do not change, it is just the price of the house changed, and I think this price change are mainly caused by two things: money supply and people's desire

What happens is that people realize the lost, which has already been done in the form of wasted resources. These resources were employed in bad investments, which had not enough returns.

Bad investments occur all the time, but when they occur massively like in an boom-and-burst, that's because something interfered with prices, making people take decisions they otherwise would not. (if prices were a correct indicative of supply and demand).

Good question (for once) and even better answer.

People dont realize that bubbles are destructive because resources are used in a bad way and are squandered. In this sense there is no difference on burning resources for nothing, destroying them in a war or using them to produce something people dont need (f.e. excessive housing). But because bubbles produce an increase in GDP some economist argue that the economy is growing, when in reality the increase in GDP is not real economic growth, just the result of economic activity that squanders resources.

People is poorer because part of what was produced was not what people needed. Less useful production = we are poorer.