Abstract
Our move to Chapman coincided with the start of the Great Recession . In the run-up, we had experienced a debt-financed housing expansion not seen since the 1920s, but much larger and potentially more damaging than the Depression. While the Federal Reserve intervened massively and cushioned the decline, it erred badly in rescuing investors from the consequences of their own decisions. The widely expressed outrage over banking-government cronyism failed to recognize that it assured that incumbent investors would survive to share the return on new growth with new investors. The effect always is, and was, to dilute that growth, assuring in this outsized case our long, painful growth recession exacerbated by too late, and excessive bank lending restrictions. Policy in the Depression had inverted this error by failing to act even to protect depositors. That collapse was deep, although the wave of bankruptcies cleared the decks for a resumption of growth, albeit from a deep hole. By late 2007, new housing expenditures had declined for seven straight quarters, noticed by the Federal Reserve, but badly mis-diagnosed in failing to see that it was evidence of an insolvency crisis not a liquidity crisis.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Notes
- 1.
- 2.
- 3.
- 4.
- 5.
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
Copyright information
© 2018 The Author(s)
About this chapter
Cite this chapter
Smith, V.L. (2018). Economic Collapse 2007–2008: Would 1929 Be Reborn in Anemic Growth?. In: A Life of Experimental Economics, Volume II. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-98425-4_19
Download citation
DOI: https://doi.org/10.1007/978-3-319-98425-4_19
Published:
Publisher Name: Palgrave Macmillan, Cham
Print ISBN: 978-3-319-98424-7
Online ISBN: 978-3-319-98425-4
eBook Packages: Economics and FinanceEconomics and Finance (R0)