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