There is little question that this is the worst economic contraction since the Great Depression. It is worse than a recession but not as bad as the Great Depression. We have a new word for it, “repression.” This is not a typical recession and, therefore we do not believe that the economy will respond to normal economic policy stimulus. We expressed the likelihood of this view in September 2007 when we said that normal Fed policy actions would likely prove ineffectual in dealing with the expanding crisis. Most economists were not of this opinion.
We came to this realization because of our reading of history. This credit crisis shared many of the elements that led up to the Panic of 1907, which was driven by new types of financial institutions that were not part of the normal financial system and had limited access to long-term liquidity. Similar elements were at work prior to this crisis when new financial institutions and investment products allowed for an accelerated growth in credit, especially for the consumer. The consumer added more debt between 2001 and 2007 than in the prior forty years combined. Additionally, the unsound and expansionary monetary policy of the Greenspan Fed helped to light the fuse that led to the creation of these credit and asset bubbles. Similarly, unwise monetary and credit policy prior to and into the 1929 Depression contributed to the collapse of the financial and economic systems of the United States. As some of our long-time readers of these shareholder letters and our website commentaries can attest to, we have warned of these growing risks for some time.
Read the complete shareholder letter
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We came to this realization because of our reading of history. This credit crisis shared many of the elements that led up to the Panic of 1907, which was driven by new types of financial institutions that were not part of the normal financial system and had limited access to long-term liquidity. Similar elements were at work prior to this crisis when new financial institutions and investment products allowed for an accelerated growth in credit, especially for the consumer. The consumer added more debt between 2001 and 2007 than in the prior forty years combined. Additionally, the unsound and expansionary monetary policy of the Greenspan Fed helped to light the fuse that led to the creation of these credit and asset bubbles. Similarly, unwise monetary and credit policy prior to and into the 1929 Depression contributed to the collapse of the financial and economic systems of the United States. As some of our long-time readers of these shareholder letters and our website commentaries can attest to, we have warned of these growing risks for some time.
Read the complete shareholder letter
Also check out:
