the economists charles kindleberger and more recently carmen reinhart and ken rogueoff argue recessions associated with financial crisis are typically deeper than normal down turns and recovery takes longer. it's evidence of hough valuable financial services are to the economy and the impact disrupting these services has on businesses and households. it's also a result of the painful adjustment that occurs when families work off the excess leverage of companies in financial crisis in the first place. it is against this backdrop that one should look at the progress that has been made in the current recovery. i like to use the analogy of a tug of war in describing the current recovery. on the one side we have the forces of the financial disruption and deleveraging that kindleberger, reinhart and rogueoff have described. on the other side we have the natural tendency for the u.s. economy to return to trend after a recession, even after the great depression. as in a bigger drop tends to lead to a bigger rebound because theretilized re back to work. a tug of war betw whate and newton's third

there is a paper there by carmen reinhart which makes the point that interest rates did not move enoughmove house prices and they also make a point about capital inflows and it is a recent survey which comes to the conclusion again that there was no connection. but again i emphasize this is something that is continuing to be debated. what were the consequences of a crisis? we will talk more about the crisis next time but the economic consequences, here is a measure of financial stress. in index which combines a variety of financial indicators that indicate the financial system is under great stress and you can see what happens in 2008 and 2009. a sharp increase in financial stress and the financial market. stock market plunged. we have been talking about the first declined their, where it says the 2,002,001 recession. that was the very large decline in tech stocks but notice the decline in the stock market and the more recent recession was even bigger than they won in 2,002,001. here as home construction and you can see the sharp decline there. home construction fell before the recessio

recoveries that follow financial crises are slower and more protracted as carmen reinhart and ken rogoff have famously written. they are slower and longer and harder because the causes of financial crises, typically a large rise in borrowing by households in the financial sector and too much investment in real estate, those act to hold down growth as they are unwound. as people bring down their debt burdens and raise their savings rate, they spend less, and as banks are forced to reduce risk and restore more prudent lending standards, they lend less. these forces work against the impact of lower interest rates, dampening the otherwise potentially powerful effects of monetary policy. there's a paradox in this in that the changes that are he's to unwind the causes of the crisis and lay a more lasting foundation for growth in the future, those changes necessarily slow the pace of expansion. the president, as you know, inherited very large fiscal deficits swollen to levels well beyond any experience since world war ii. and the dramatic erosion of our fiscal position between 2001 and 2008 and

the banking system and on the financial system, and again research notably by ken rogoff and carmen reinhartly recoveries following financial crisis also tend to be somewhat slower than they otherwise would be. so having been hit by both of these factors and with housing problems still being important as you noted and as with financial conditions including some of the stresses coming from europe still being a drag to some extent on economic activity, um, we have had a slower recovery than we otherwise would have anticipated. nevertheless, of course, we have had now growth since mid 2009, and unemployment has come down. but, of course, not, the growth is not as strong, and the improvement in the unemployment rate is not as quick as, obviously, we would like. >> u.s. consumers are deleveraging to reduce high debt levels. credit is still tight for u.s. companies and households, and fiscal policy has begun to tighten. as we consider economic growth in the near and long term, should congress enact drastic spending cuts and balance the budget this year, or would a plan to curb deficits and address

carmen's name is first, it should be reinhardt, rogoff. >> it is reinhardt rogoff. >> all academic papers are alphabetical. >> this is a book. >> we saw it. >> you shouldn't range it, it's reinharty have done that, though, that's what we've called it here the whole time. >> all right. well, anyway, it's nice of you to take a back seat and defer. it's the kind of guy you are. >> and you want to make fun of andrew, he traveled yesterday, off today. >> he's off next week. >> he gets on a flight and he takes time off. i didn't know if you wanted to make fun of him in dacase you we going to do that. >> am i introducing goolsbee? we are messing with people. because they looked like they were cloned. >> right. >> and now we're going to have them both on. >> becky and i are right. >> people at home will be going, wait a second, what's happening? >> austan has a little less hair because he worked in government for a little bit more than mark did. >> right, right, right. >>> all right, we're going to -- >> look at diane who has never worked in government. >> u.s. equity futures. >> my hair is getting longer. >> it's a 13-point gain, so what good is the percentage gain? i don't know. but t