CIAO DATE: 09/2009
July 2009
Belfer Center for Science and International Affairs, Harvard University
The current economic crisis is fundamentally different from those we have experienced in recent past. The proximate causes of previous recessions (1980-2 and 1990-91) were increases in interest rates in response to inflation. This time around, however, low interest rates and loose monetary policy during the period 2003-2005 had contributed to a bubble in asset prices, rather than to inflation. This - coupled with an underestimation of risk in our financial system, failures of corporate governance, and excessive debt by both households and government - caused the crisis of 2007-09.
Resource link: How Do We Know This is Not Another Great Depression? Lessons for Policymakers from the 1930s [PDF] - 523K