Macroeconomics Case Study

US Financial Crisis: Is this Great Depression II in the making?

OR

Abstract:
This case study is written primarily to answer one simple, yet inconclusive question: Should US Financial Crisis (2008) be termed Great Depression II? The Great Depression of the 1930s is such a traumatic economic experience that whenever there is any slump in economic activity, a spontaneous spooky sense occupies people’s mindscape. The case study relates the US Financial Crisis of 2008 to the Great Depression of 1929 by taking into consideration the key magnitudes of the economic decline in those days and at present. The benefits of hindsight, the state of global integration, the availability of policy options – then and now – have also been touched upon. In the process, the case analyses an array of concepts like economic slowdown, recession, depression, various gauges to judge the severity of the economic downturn, various indicators of recession, Baltic freight index, subprime mortgage, housing bubble, CDO, CDS, Minsky moment, monetary policy, fiscal policy, Phillips curve, stagflation, etc. It also goes on an exploration of the causes of the Great Depression as pointed out by Keynesians, Monetarists, Marxists and neo-classical Misesians; the cures prescribed by them; the measures actually implemented; and the degree of success achieved. Whether – in the realm of an economy – history repeats itself or merely rhymes come off as the main focus as the case uncovers.

Pedagogical Objectives:

• To understand the various concepts of economic downturn and the methodologies of their measurement
• To analyse how economic downturn is a frequent feature of a capitalist economy
• To explore the causes of the Great Depression of 1929 and debate whether economic downturn of 2008 would slide into depression.

Keywords : Financial Crisis; Subprime Mortgages; Housing Bubble Depression; Recession; Slowdown; CDOs; CDSs; Keynesian Economics; Keynes; Federal Reserve; Milton Friedman; JK Galbraith; Minksy Kindleberger Moment; Kindleberger

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