Storm ahead: financial crisis fact sheet.

• Author: Doherty, Brian
• Position: Citings - Brief article

STIMULUS package or not, the history of past financial crises suggests America can expect grim economic times for a while.

In a January working paper from the National Bureau of Economic Research, economists Carmen M. Reinhart of the University of Maryland and Thomas S. Rogoff of Harvard studied eight postwar and two prewar episodes of protracted national financial crises of the sort we now suffer.

While past performance is no guarantee of future bad results, the effects of the current type of economic crisis, as opposed to a typical recession, tend to be grim and long-lasting. From highest point to lowest point, on average over all the calamities studied, real housing prices shrunk 35 percent over six years; equity prices fell 55 percent over three and a half years; unemployment during the downward phase of the cycle rose 7 percent-age points over four years; and national output plummeted 9 percent overall in the two-year cycle.

Such financial crises leave big bills to pay. Government debt, studied in only the postwar downturns, rose an average of 86 percent. Lending some credence to the notion that an...