How An Economy Crashes And The 2008 Recession

“How an Economy Grows and Why it Crashes” and the 2008 Recession

In 2008, the U.S economy went through the “Great Recession,” possibly as a result of inappropriate and ineffective regulation in the banking system, causing Lehman Brothers to file for bankruptcy. There was a large debt and housing bubble which resulted in plummeting real estate prices and financial securities. Peter D. Schiff’s “How an Economy Grows and Why it Crashes” uses comic illustrations and a simple storyline to teach readers about how the 2008 recession came about and how the U.S tried to relieve it using the ideas of credit, savings, and other economic concepts.

In the film “Too Big to Fail,” the picture suggests that the real blame of the economic situation was on the deregulation of banks that began occurring under President Ronald Reagan. This left the system open to abuse because there was essentially no “safety net.” While Schiff does not explicitly write this, he does point out the carelessness with which loans were approved, both in the investment banking industry and real estate market, and carelessness of the government in making easy credit readily available. During the recession, the U.S. economy contracted as did the value of its currency. In chapter 13 of Schiff’s book, he discusses “Fish Reserve Notes,” parodying the Central Bank, known as the Fed in the Unite. When withdrawals started to make a dent in the fish reserves, the “technicians” or monetarists began creating more fish notes that were noticeably smaller which meant they were less in value. However, this solution could not last forever. Thus, the “fish window” was closed and the value of notes would rely on Usonia’s status as a great economic power. Like Usonia, the U.S. relies on t...

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...ting a larger and larger budget deficit, leaving a huge burden for the next generation.

Now, we are living beyond our means by borrowing from other countries just as Usonia borrowed from Sinopia. When the Sinopians finally stop lending, our standard of living will be forced downwards. Right now, all forms of debt have become some sort of government debt. Schiff believes that we have created a whole new bubble- one in Treasury bonds. When it bursts, price level and interest rates will soar. The effects would be even worse than those of the housing bubble. “How an Economy Grows and Why it Crashes” paints a picture of an economy mimicking the U.S. that could have avoided its disparaging fate. We, however, still have time to escape this path if we allow free market forces to regulate the economy, spend within our means, and build savings in case of a cloudy future.