In an op-ed piece today, University of Maryland Economics Professor Carmen Reinhart and former International Monetary Fund Chief Economist and Harvard University Economics Professor Kenneth Rogoff note that the U. S. economy “has been driving straight down the tracks of past severe financial crises” (e.g., Spain 1977, Norway 1987, Finland 1991, Sweden 1991, and Japan 1992).
Here are some take-aways:
“…negative growth episodes typically subside in just under two years.”
“In the typical severe financial crisis, the real (inflation-adjusted) price of housing tends to decline 36%, with the duration of peak to trough lasting five to six years. Given that U.S. housing prices peaked at the end of 2005, this means that the bottom won’t come before the end of 2010, with real housing prices falling perhaps another 8%-10% from current levels.”
“Over past crises, the duration of the period of rising unemployment averaged nearly five years, with a mean increase in the unemployment rate of seven percentage points, which would bring the U.S. to double digits.”
“Perhaps the most stunning message from crisis history is the simply staggering rise in government debt most countries experience.”
“…deep financial crises in the past have mostly been country-specific or regional, allowing countries to export their way out….The current crisis is decidedly global.”
The authors go on to discuss the implications of their findings for our current predicament — a sober assessment but well worth the five minutes to read it.
I will venture the opinion that the professors’ assessment appears founded on an assumption of an economic “trough” from which our “rebound” may be slow. They do not discuss the impact of longer-term brakes on recovery that I have summarized in earlier posts: our worsening rate of job creation over the past 20 years, no gains in real median household income during the past expansion, or restrained consumer spending due to lower borrowing capacity.
Topics: Economy
Leave a Reply