How prescient was this, circa January 2008:
“Broadly speaking, financial crises are protracted affairs. More often than not, the aftermath of severe financial crises share three characteristics:
First, asset market collapses are deep and prolonged. Real housing price declines average 35 percent stretched out over six years, while equity price collapses average 55 percent over a downturn of about three and a half years.
Second, the aftermath of banking crises is associated with profound declines in output and employment. The unemployment rate rises an average of 7 percentage points over the down phase of the cycle, which lasts on average over four years. Output falls (from peak to trough) an average of over 9 percent, although the duration of the downturn, averaging roughly two years, is considerably shorter than for unemployment.
Third, the real value of government debt tends to explode, rising an average of 86 percent in the major post–World War II episodes. Interestingly, the main cause of debt explosions is not the widely cited costs of bailing out and recapitalizing the banking system.
Admittedly, bailout costs are difficult to measure, and there is considerable divergence among estimates from competing studies. But even upper-bound estimates pale next to actual measured rises in public debt. In fact, the big drivers of debt increases are the inevitable collapse in tax revenues that governments suffer in the wake of deep and prolonged output contractions, as well as often ambitious countercyclical fiscal policies aimed at mitigating the downturn.”
Not only are most other economists getting it wrong, they seem to be pretending that nobody warned them in advance what to expect.
Kudos to Reinhart & Rogoff (again)
5 Historical Economic Crises and the U.S. (February 9th, 2008)
The Aftermath of Financial Crises (January 24th, 2009)
Is the 2007 U.S. Sub-Prime Financial Crisis So Different? An International
Historical Comparison* (PDF)
Carmen M. Reinhart, University of Maryland and the NBER
Kenneth S. Rogoff , Harvard University and the NBER, January 14, 2008