Our current crisis is like all the others studied over an 800 year span. They all result from ignorance (of the past) and from the mistaken belief that this time is different. The crises are made up of ballooning housing and equity prices, staggering borrowing from abroad, slowing economic growth, deregulation, and a mountain of short term debt.
These were the common features of financial crises of Asia in the 90s, of Latin America in the 80s, on Wall Street in 1907, in Germany in 1873, in the Mississippi bubble of 1720, and the 1340 Florence collapse. The current decline on Wall Street from peak to bottom was average, 35%, as was that in housing prices. The recovery so far has been typical of the past, when on average, stocks went back to their peak in two to three years while unemployment took two years to reach a bottom and five more to reach the pre-crisis level. Governments double their debt in three years, historically followed by defaults too numerous to mention.
If we examine the US response to the current crisis, we are not doing very well in either our diagnosis or our repairs to break the mold.
