By Karl Reiner
Many ardent conservatives believe the country is spiraling downward, the future bleak. They urge buying gold, stocking up on food and arms, getting ready for the collapse of society. The gloomy mindset may be a reaction to the fact that the recession was partly caused by the banking deregulation they advocated.
Their sense of unease is not completely misplaced. The government reaction to the 2008 financial collapse sent budget deficits soaring and held interest rates to near zero. Although the actions prevented the Great Recession from turning into a depression, the economic hit was hard, a consequence of the misallocation of resources to the housing sector.
Before the crisis, the growth of the financial sector provided some benefits. It helped world trade increase from 22% to 33% of global GDP during the years before the housing crash. New ways of financing homes led to lower borrowing costs and increased home ownership. Unfortunately, the availability of easy credit also promoted poor lending practices and a rise in private sector debt.