House on Ice

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Johnny Oxygen
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House on Ice

House on Ice

http://www.hussmanfunds.com/wmc/wmc101129.htm

"If you have bad banks then you very urgently want to clean up your banks because bad banks go only one way: they get worse. In the end every bank is a fiscal problem. When you have bad banks, it is in a political environment where it is totally understood that the government is going to bail them out in the end. And that's why they are so bad, and that's why they get worse. So cleaning up the banks is an essential counterpart of any attempt to have a well functioning economy. It is a counterpart of any attempt to have a dull, uninteresting macroeconomy. And there is no excuse to do it slowly because it is very expensive to postpone the cleanup. There is no technical issue in doing the cleanup. It's mostly to decide to start to grow up and stop the mess."

MIT Economist Rudiger Dornbusch, November 1998

 

In the chart below, you can see the impact of such downturn on the actual 4-year growth of the economy, versus what one would have projected. Notice that in the chart below, periodic recessions have caused GDP growth to fall short of the benchmark expectations. For instance, the 1981-1982 recession caused a shortfall versus the 4-year growth that one would have anticipated in 1977-1978. The 1991 recession caused a shortfall versus what one would have expected in 1987. And the 2009 collapse caused a shortfall versus what one would have expected in 2005.

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