Originally published on April 6, 2009
There is an excellent article in the WSJ today by Steven Gjerstad and Vernon Smith discussing the origins of the housing bubble. It offers a convincing case for why this housing bubble which so far has caused the loss of about $3 trillion in housing wealth has had a more depressing effect on the economy than the dotcom bubble in 1999-2002 that resulted in a loss of about $10 trillion in wealth. They also look at parallels with the Great Depression era and suggest that Friedman and Schwartz’s contention that monetary contraction was the primary cause of the banking system collapse might now be discounted because the current injections of liquidity have not prevented a similar financial sector collapse.
