The Global Financial Crisis and the Return to Economic Growth
Chapter 2: The course of the crisis
The first step in getting back on the path to economic growth is to understand how the Global Economic Crisis unfolded since its inception in 2007. Examining the course of the crisis is not just an academic exercise; we must know exactly what happened in order to fix the problems. The economic collapse we have endured is quite different from the many business cycle economic recessions of the post-World War II era. Such recessions are slowdowns caused by over-exuberant economic expansions that stimulate market corrections. In the post-war era, monetary and fiscal policy tools have generally been enough to moderate such slowdowns and economic growth is relatively quick and easy to regain. By contrast, the Global Financial Crisis, as I will call it, was first and foremost a fiscal collapse, the like of which has not happened since the Great Depression of the 1930s. A fiscal collapse is the most serious of all economic difficulties because all business activity depends to some degree upon the essential functioning of fiscal institutions to generate and allocate capital. The fiscal collapse, which began in the United States, thus had a cascading adverse impact on all forms of economic activity, which had a global effect because of the interconnected nature of the world economy.
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