Double-dip? Or 7-year “debt de-leveraging”?

In a depressing reality-check on the US economy, Ezra Klein quotes an economist who has studied the aftermath of various financial crises and finds they are quite different from regular business-cycle recessions.

Writes Klein:

“In a paper co-authored with her husband, economist Vincent Reinhart, Carmen Reinhart looked at the aftermath of the 15 post-World War II financial crises. “The monetary policies in these episodes were quite different. The fiscal policies were quite different. And the exchange rates were all over the place,” she says. But wherever there was a substantial overhang of private debt, there was a long road to recovery.”

“Debt de-leveraging takes about seven years. That’s the essence,” she says. “And in the decade following severe financial crises, you tend to grow by 1 to 1.5 percentage points less than in the decade before, because the decade before was fueled by a boom in private borrowing, and not all of that growth was real. The unemployment figures in advanced economies after falls are also very dark. Unemployment remains anchored about five percentage points above what it was in the decade before.”

Full article at the Washington Post: Don’t Call it a Recession.

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