The great reflation—a combination of various stimulus packages, bank bailouts and built-in fiscal stabilizers—worked its magic in preventing the economic downturn of 2008-2009 from morphing into another great depression. Calculations by Alan Blinder and Mark Zandi1 indicate that, without those actions the economic downturn would have been three times deeper and unemployment would have almost doubled from its 10% peak. Our sense is that the economic and financial crisis would have been even more devastating than that because those calculations ignore the psychology of panic. Failure to “put out the fire” would have risked burning the whole forest down.
Read the full report: "U.S. Government Debt: The Upward Spiral Continues" (PDF, 542 KB).
Reposted with respect and permission from The Boeckh Investment Letter
