The two charts that show how the Great Recession really happened

An interesting take on what really caused the recession…

Washington has produced lots of policy in response to the Great Recession. TARP, the $800 billion stimulus, Dodd Frank, HAMP and HARP, the QEs.  But would policymakers have acted differently if they had thought differently about what caused the Great Recession? The common explanation for the downturn places the housing bust and the resulting financial crisis at the epicenter.

But Robert Hetzel, a senior economist at Federal Reserve Bank of Richmond, offers an alternative explanation in The Great Recession: Market Failure or Policy Failure, Hetzel pins the blame squarely on the Federal Reserve and Team Bernanke.  As Hetzel writes in a Fed paper that inspired the book. “Restrictive monetary policy rather than the deleveraging in financial markets that had begun in August 2007 offers a more direct explanation of the intensification of the recession that began in the summer of 2008.”


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