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These are historic times.
Collapse of an asset price bubble and consequent disintegration of the credit mechanism

More pressing than discretionary fiscal action is getting the banks to lend.
This is why they have been helped, in the first place. Unfortunately, their marginal cost of funds, plus required margins, is above rates they are expected to charge.
This is why sharp cuts in official intervention rates are vital.
Martin Wolf, Financial Times 30/10 2008

Despite unprecedented recent intervention by governments, led by the UK, further tightening of credit has occurred.
Even Charles Bean, deputy governor of the Bank of England for monetary policy, describes what is happening as “possibly the largest financial crisis of its kind in human history”.

David Blanchflower, an external member of the monetary policy committee and professor of economics at Dartmouth College in the US, is entitled to say “I told you so”.

Prof Blanchflower laid them out this week in a speech delivered, quite appropriately, at Keynes College, University of Kent.

These are historic times. Given the origins of the crisis in the collapse of an asset price bubble and consequent disintegration of the credit mechanism, the way the recession will evolve remains obscure. The authorities must now focus all their attention on reducing its likely scale. But then they must ask themselves how such a gigantic mess occurred.

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