No one has mentioned this grim report from yesterday’s New York Times, so allow me to bring it to your attention. It should be read from beginning to end to get a sense of the scale and scope of the disruption. It’s especially not a good sign that there is an uptick in the perceived risk of a U.S. government default.
For superb background reading, take a look at this paper by Greenlaw, Hatzius, Kashyap and Shin. It’s low tech; in fact much of it reads like a macro principles text of the future, after the flow of funds and balance sheet analysis will have been integrated into the core model. Some readers will note that the authors make a structural case for Minsky cycles, one that does not depend directly on psychological postulates. All of this, plus an informed (but probably conservative) estimate of the contribution the credit crunch (“deleveraging”) will make to an overall economic slowdown.