Study of the Past Suggests the Financial Crisis Could be Longer Than Expected

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Kenneth Rogoff, Harvard economist, and Carmen Reinhart, University of Maryland Economist, have recently published a study of past financial crises going back up to 800 years, but focusing on the last 100 years. It doesn’t paint a pretty picture:

1. Real housing price declines average over 35% over a six year period. In other crises, residential real estate was not necessarily the cause of the crisis.

2. Equity prices fall 55% over 3 1/2 years.

3. GDP falls an average of 9%.

4. Unemployment increases 7% over previous norms.

5. Government debt increases an average of 86% mainly from maintaining services in the face of collapsing tax revenues and engaging in countercyclical stimulus measures.

Sources:

http://www.nakedcapitalism.com/2009/01/past-financial-crises-suggest-pain-far.html

http://ws1.ad.economics.harvard.edu/faculty/rogoff/files/Aftermath.pdf

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