Foreign Policy: 8 Steps to a Trillion-Dollar Meltdown

Foreign Policy: 8 Steps to a Trillion-Dollar Meltdown

How did the U.S. financial crisis happen? A review of the road to ruin reveals a course littered with more villains than heroes. The chairman: Is Ben big enough to tell the financial sector to eat its losses? No, it’s not the Great Depression, but the United States is facing a nasty economy-wide retrenchment following the excesses of the 2000s, with no easy way to dance through it. Think 1979 to 1982, when then U.S. Federal Reserve Chairman Paul Volcker exorcised consumer price inflation from the economy. The difference today is that the inflationary explosion has been absorbed by prices of assets—houses, stocks and bonds, office buildings—rather than by the prices of things you buy at the store. Here’s how it happened.