[lbo-talk] Common patterns in recurrent capitalist crises

[Marv Gandall]

Kenneth Rogoff and Carmen Reinhart, co-authors of numerous studies on the aftermath of financial crises and a current well-publicized book, "This Time Is Different: Eight Centuries of Financial Folly", have a new paper out which they presented at the Federal Reserve's Jackson Hole meeting two weeks ago. The paper "examines the behavior of real GDP (levels and growth rates), unemployment, inflation, bank credit, and real estate prices in a twenty one-year window surrounding selected adverse global and country-specific shocks or events. The episodes include the 1929 stock market crash, the 1973 oil shock, the 2007 U.S. subprime collapse and fifteen severe post-World War II financial crises. The focus is not on the immediate antecedents and aftermath of these events but on longer horizons that compare decades rather than years." 

The data confirm that the periods of relative prosperity preceding the the global depression of the 30's, the Latin American debt crisis of the 80's, Japan's "lost decade" in the 90's, and lesser financial crises were all "importantly fueled by an expansion in credit and rising leverage that spans about 10 years" and were "followed by a lengthy period of retrenchment that most often only begins after the crisis and lasts almost as long as the credit surge", characterized in each case by sharp falls in employment, income, growth, prices and other major indicators of economic activity.

See: http://www.aei.org/docLib/Reinhart-After-the-Fall-August-17.pdf