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

By on January 3, 2009

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.



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