Ongoing Bubbles and Balance Sheet Recessions

This chapter is about ongoing bubbles and balance sheet recessions, with a special emphasis on the U.S. subprime problem. The U.S. economic downturn brought about by the subprime fiasco is a version of a balance sheet recession, with many of its unpleasant characteristics. It is also a highly dangerous recession in that so many financial institutions on both sides of the Atlantic have been badly damaged by the fiasco. Although no quick recovery is possible with so much damage to household and bank balance sheets, the lessons people learned from Japan during the past fifteen years can be put to good use to minimize the recovery time for the U.S. economy.