Consumption and Investment Booms in the Twenties and Their Collapse in 1930
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Chapter in forthcoming NBER book Housing and Mortgage Markets in Historical Perspective, Eugene N. White, Kenneth Snowden, and Price Fishback, editors
Similarities between the financial crisis in September 2008 and the collapse of the financial system during the depression have been widely noted. Yet the comparability of the origins and transmission of the crises have been neglected. The recent downturn, which originated with a pronounced housing boom and collapse, led to severe household balance sheet problems that were transmitted to lenders and mortgage security investors. Damage to household balance sheets weakened household demand – especially for housing and durable goods – which adversely affected employment, production, and non-residential fixed investment. This pattern, however, is not recognized in the dominant view as a possible cause of the depression. Contrary to prevailing views of the origins of the Great Depression, this paper argues that changes in levels of mortgage finance, residential construction, and the broader economy preceding and during the initial phases of the Great Depression shared many features with the recent Great Recession.
This paper was revised on September 3, 2013
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