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The ghost of 1938

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Patrick Kelliher

Since the financial crisis of 2007/09, economic growth in the UK and the rest of the EU has been patchy but the US has generally been posting steady if unspectacular growth figures. Were it not for dips in Q1 2011 and Q1 2014, it would be entering its 26th quarter of real growth since the trough of the downturn in Q2 2009 to the end or 2015 [1]. This is on a par with the expansion in the US economy in the run-up to the financial crisis, which begs the question: how long can this growth last ? and what would be the impact when the recovery falters ?

An uncomfortable precedent if it falters is the US recession of 1937/38. As at present, the US was recovering from a balance sheet driven recession, though the depression of 1929/33 was much worse the financial criis of 2007/09, with GDP falling 45% in nominal terms between 1929 and 1933. After that fall, GDP recovered strongly, growing by 63% in nominal terms between 1933 and 1937, partly on the back of President Franklin D. Roosevelt’s...

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