nhboy
Ubi bene ibi patria
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"It really was the end of the world.
It's hard to remember now, but in 2008 Lehman's collapse seemed like the start of something worse than a second Great Depression. As Barry Eichengreen and Kevin O'Rourke point out, world trade, world stock markets, and world industrial production all fell faster in 2008 than in 1929. It was just about the biggest economic shock in recorded history, and the abyss beckoned.
But we avoided it. We "only" got a Great Recession, and not the Greater Depression. That's clear enough in the charts above (and in the fact that we still have something called "an economy," and aren't all farmers today). As you can see, the 2008 crash started out worse than the 1929 one, but soon stabilized and then started to recover. That's because, despite the quicker collapse, policymakers today didn't make all of the mistakes of the 1930s. Instead of raising rates and trying to balance budgets as the bottom fell out, they did the opposite—at least initially. In early 2009 China launched a relatively massive $585 billion infrastructure program. The Fed started printing money and buying bonds à l'outrance. And then there was the stimulus.
It's become a political four-letter word, but the reality is that the $787 billion stimulus was too small for the job, and even smaller than it sounded. A full $70 billion of it didn't go to new programs, but rather to fixing the Alternative Minimum Tax. That left far too little money to fill the economy's hole—a hole that was far deeper than we realized at the time. Indeed, when the administration said the Recovery Act would keep unemployment below 8 percent, it thought GDP was falling 3.8 percent; subsequent revisions showed it was actually falling 8.9 percent. "
"It really was the end of the world.
It's hard to remember now, but in 2008 Lehman's collapse seemed like the start of something worse than a second Great Depression. As Barry Eichengreen and Kevin O'Rourke point out, world trade, world stock markets, and world industrial production all fell faster in 2008 than in 1929. It was just about the biggest economic shock in recorded history, and the abyss beckoned.
But we avoided it. We "only" got a Great Recession, and not the Greater Depression. That's clear enough in the charts above (and in the fact that we still have something called "an economy," and aren't all farmers today). As you can see, the 2008 crash started out worse than the 1929 one, but soon stabilized and then started to recover. That's because, despite the quicker collapse, policymakers today didn't make all of the mistakes of the 1930s. Instead of raising rates and trying to balance budgets as the bottom fell out, they did the opposite—at least initially. In early 2009 China launched a relatively massive $585 billion infrastructure program. The Fed started printing money and buying bonds à l'outrance. And then there was the stimulus.
It's become a political four-letter word, but the reality is that the $787 billion stimulus was too small for the job, and even smaller than it sounded. A full $70 billion of it didn't go to new programs, but rather to fixing the Alternative Minimum Tax. That left far too little money to fill the economy's hole—a hole that was far deeper than we realized at the time. Indeed, when the administration said the Recovery Act would keep unemployment below 8 percent, it thought GDP was falling 3.8 percent; subsequent revisions showed it was actually falling 8.9 percent. "
