What Happens After The Recession?

This Harvard study (opens pdf) takes a look at what is going to happen after – after a deep recession combines with a collapse of the financial sector.

This is what passes for a positive assertion: “Even recessions sparked by financial crises do eventually end, albeit almost invariably accompanied by massive increases in government debt. ”

Unfortunately, they say that underneath…

An examination of the aftermath of severe financial crises shows deep and lasting effects on asset prices, output and employment. Unemployment rises and housing price declines extend out for five and six years, respectively.

And the looming 8000 pound gorilla – international collapse, as nations default,

Indeed, these historical comparisons were based on episodes that, with the notable exception of the Great Depression in the United States, were individual or regional in nature. The global nature of the crisis will make it far more difficult for many countries to grow their way out through higher exports, or to smooth the consumption effects through foreign borrowing. In such circumstances, the recent lull in sovereign defaults is likely to come to an end.