Dr. Ed's Insight of the Day

Ed Yardeni opines thusly on 2008:

This year was a Black Swan for sure if you happened to work on Wall Street, particularly Bear Stearns and Lehman. It’s been bleak for many homeowners who have lost or are losing their homes. Investors in corporate bonds and stocks have been hit with huge losses. Detroit’s automakers are on life support. The Fed’s assets have more than doubled since mid-September. The federal debt has increased by almost $1 trillion since August. I believe that the Great Moderation set the stage for what could still become the Great Recession by lulling investors into believing that credit insurance in the form of structured derivatives had virtually eliminated risk.

The economy was experiencing a Moderatistan recession earlier this year. It was widely expected to be short and shallow. It turned into an "Extremistan" depression after September 15 when Lehman failed. A depression happens when anti-recessionary monetary and fiscal policies fail to work. The Fed has lowered the federal funds rate dramatically over the past year, but credit quality bond spreads are the widest since the Great Depression. Tax rebates totaling about $100bn earlier this year were swamped by gasoline jumping to $4 a gallon during the summer. During the fall, the credit crunch and soaring unemployment trumped the plunge in gasoline prices.