Gedankenexperiment: How Could This be Worse Than the Depression?

Provocative piece up earlier this week over on the (excellent) FT economists’ forum. Authored by Anders Aslund of the Peterson Institute, the piece takes people to task for stubbornly insisting that the current crisis could not end up being worse the the Depression. While it very likely won’t end up being worse than the Depression, taking it as an article of faith is over-rigid thinking that helps no-one.

Here are Aslund’s points with respect to where the “why it could be worse” risks lie. He is not saying it will be worse, just that the following represent some of the possible blind spots.



Defended exchange rates over-aggressively Floating exchange rates could lead to trade panic
Allowed monetary supply to shrink dramatically Monetary expansion and budget deficits lead to currency collapses
States did not go bankrupt States could go bankrupt, leading to hyperinflation
Subprime loans existed, but market were simpler Deeper and more complex markets with connective tissue everywhere
Emanated from two countries: US and Germany Coming from everywhere, i.e., with worst real estate bubbles in Moscow and Middle east
Minimal over-leveraging of major financial institutions Massive over-leverage of major financial institutions
Global trade was frozen in wave of protectionism Global trade freezing in credit contraction
Relatively slow advance and loose coupling Fast advance and tight coupling via trade and global media

More here.


  1. I feel stiafseid after reading that one.