Ten Steps to Creating the Great Recession

In a post on his blog Brad DeLong explains the ten steps that nobody foresaw that is responsible for the US being stuck in an on-going recession -- a "lost decade" like Japan in the 1990s. Each of these steps requires a failure of institutions or leadership that is mind-boggling. But, sadly, all 10 steps have been taken and the US is now in a mess...

1. That a global savings glut and a period of low interest rates would produce a housing boom.


2. That the housing boom would turn into a housing bubble.


3. That the housing bubble would lead to a collapse of mortgage underwriting standards.


4. That risk management practices on Wall Street would have been nonexistent.


5. That the Federal Reserve would not be able to construct its usual firewall between finance and the real economy.


6. That the Federal Reserve would not feel itself empowered to take the emergency steps to stabilize demand needed during and in the immediate aftermath of the financial crisis.


7. That the incoming Obama administration would come out of the gate with too small an economic recovery package.


8. That politics would prevent the Obama administration from being able to take a second bite at the apple.


9. That the Obama administration would then give up on pushing the envelope of its powers to try to generate a strong recovery.


10. That the intellectual victory of Keynesian approaches on the level of reality--forecasting and accounting for the course of the Little Depression--would be accompanied by a non-intellectual defeat of Keynesian approaches on the level of politics.

And the tragedy is that the Republican Party is not happy with the crushing disaster of the Great Recession. They, during this next month, are going to add an eleventh step:

The minority party will refuse to allow the government of the US to meet its financial obligations and force the US into defaulting on its debts. In short, turn the US into a deadbeat nation.

Who would have predicted that?

So the chain of unlikely "events" keeps getting extended and the disaster grows. Stay tuned as the US turns itself into a banana republic.