Paul Krugman writes:
Postmoderation recessions: Calculated Risk says much of what I'd say about housing and the prospects for quick economic recovery. But I'd like to offer a bit more analysis. A lot of what we think we know about recession and recovery comes from the experience of the 70s and 80s.... very different from the recessions since. Each of the slumps... caused, basically, by high interest rates imposed by the Fed to control inflation. In each case housing tanked, then bounced back when interest rates were allowed to fall again.
Since the mid 1980s.... Post-moderation recessions haven%u2019t been deliberately engineered by the Fed, they just happen when credit bubbles or other things get out of hand. And while they haven't been as deep as the older type of recession, they've proved hard to end... in terms of employment... because housing -- which is the main thing that responds to monetary policy -- has to rise above normal levels rather than recover from an interest-imposed slump. That's why I think our current problems will last a long time. CR says 2009; I say 2010.