Fri 2010-02-26 16:26 EST
Risk taking, regulatory capture and bailouts: The doomsday cycle | vox - Research-based policy analysis and commentary from leading economists
Over the last three decades, the US financial system has tripled in size, as measured by total credit relative to GDP (see Figure 1). Each time the system runs into problems, the Federal Reserve quickly lowers interest rates to revive it. These crises appear to be getting worse and worse -- and their impact is increasingly global. Not only are interest rates near zero around the world, but many countries are on fiscal trajectories that require major changes to avoid eventual financial collapse. What will happen when the next shock hits? We believe we may be nearing the stage where the answer will be -- just as it was in the Great Depression -- a calamitous global collapse. The root problem is that we have let a `doomsday cycle' infiltrate our economic system...
Bailout; commentary; doomsday cycle; leading economists; regulatory capture; research-based policy analysis; risk take; Vox.