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Origins of the Economic Crisis – In One Chart!

Every two years, Harvard Kennedy School hosts the newly elected Members of Congress for a three-day “briefing” on a wide variety  of topics.   We had an excellent turnout this week: 40 of the 50 new congresspeople, from both parties.    I participated in a panel titled “Understanding the Economic Crisis,”  along with Greg Mankiw, Elizabeth Warren and Robert Lawrence  (on video).

Trying to explain the financial crisis and recession in ten minutes, even to the extent any of us understands it, was a tall order.    But I tried to cram it all into a single slide.     Here it is:

NewmemberscongrCrisisorigns.jpg


Originally published at Jeff Frankel’s Weblog and reproduced here with the author’s permission.

8 Responses to “Origins of the Economic Crisis – In One Chart!”

AndreDecember 7th, 2008 at 12:08 pm

This is similar to “A Visual Guide to the Financial Crisis”http://blog.mint.com/blog/finance-core/a-visual-guide-to-the-financial-crisis/

AnonymousDecember 7th, 2008 at 7:49 pm

You missed two: trillions in US government fraud and money laundering and the privately owned Federal Reserve and Paulson taking care of their favored few.If we had sound money (instead of FED fiat) and if congress issued and maintained the currency and credit under the Treasury via PAID-AS-YOU-GO appropriations – this would have never been possible.

AnonymousDecember 8th, 2008 at 1:32 am

Two more things that was missed: the Community Reinvestment Act and the urging of Fanny and Freddie to buy and sell vast amounts of subprime loans. If banks hadn’t been forced nor rewarded to act irrationally, this never would have happened.

AnonymousDecember 8th, 2008 at 12:31 pm

Is the Obama plan going to save us? Glib politicians frighten me. How much of this money will go to productive investment? How much will be lost in bad projects and cost overuns? US and State governments excel in bad management.What intrigues me the most is how this is going to be financed and repaid? I note with interest the last scribbling in your chart about foreign debt and loss of US ‘hegemony’. Sorry, I do not see how accounts are going to balance.It seems to me that priming consumption by sovereign debt is simply pushing the problem around. Eventually the US government will join the bad debtors’ club where states like California and New Jersey have been members for years.If Harvard recently lost US$ 8 billion in endowment money, there must be something rotten in Academia, too

H. FischerDecember 12th, 2008 at 7:15 am

What is missing is the root cause of all this cheap money: savings from China, oil exporting countries and others. the FED lowered short term rates, but long term real rates were extremely low as well. In addition there was the carry trade, well above a trillion. Cheap credit fuelled the housing bubble, the subprime issue was a reinforcer, home equity made households feel rich and they cut back savings and borrowed for more house investments etc. So while I agree with much of the picture, it does not explain the root cause which are international imbalances.

AkshayJanuary 14th, 2009 at 7:46 am

At the time of financial crises we need to come together united and try to solve the problems which are responsible for such a hazard. We need to overcome it. It is meant to bring calm to the population and markets and display government strength and stability. As a large number of people spend their money in movies, making films, sports, nowadays even on internet many sites offer to and in our country there are many multi table poker tournaments take place where many people lose a large sum of money there in such stuffs which should be minimized as the world is going through a phase where a little wastage of money could be matter of remorse.

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