The Dismal Science

It is an interesting thing; to read about The Great Recession, now that we are actually in the middle of it. I cannot tell where the market will move tomorrow or whether Spain will default on its sovereign debt in 2 years. What I can tell you, and what I think any decent economist should be able to tell you in where we are in the "supercycle".

We can probably all agree on a few things:

• There was a boom fuelled by cheap debt leading to irresponsible investments and risk taking



• There was a credit crisis induced by defaults on securitised mortgages (read the first post!)



• Irresponsible monetary policy with overally low interest rates added fuel to this fire, accerating the boom, and exascerbating the bust



• We are in the bust - this is a severe prolonged global recession

So, if there is broad agreement on what caused the recession we are currently in, it seems mind boggling that no one sees ,with equally clarity, how this should be resolved:

• Debt caused the boom - deleveraging will correct it, by default or austerity



• Irresponsible lending practices led to excessive risk taking - reform and regulating the banking industry is required to see that this doesn't happen again (at least until Alan Greenspan II repeals the Glass Steagall Act II in the late 2060's)

Economic science (a stretch of concept), indeed all social sciences need to incorporate generational theory into their models. As Messrs Howe and Strauss have proven, history does indeed repeat itself.

What we call "The Great Recession", history may well call "The Second Great Depression" just as "The Great War" became "World War I".

Let's just hope history doesn't repeat in every way.