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skip to main navigation skip to secondary navigation skip to content What's New · What's Next · Site Map · A-Z Index · FAQs · Careers · RSS About the Fed News Monetary Policy Banking Information Payment Systems Econ o m Rese a a skip to content Testimony and Speeches Press Releases Regulatory Reform Conferences Other Public Communication Testimony and Speeches Press Releases Regulatory Reform Conferences Other Public Communication Menu Home > > 2009 Speeches Print Speech Governor Kevin Warsh At the Council of Institutional Investors 2009 Spring Meeting, Washington, D.C. April 6, 2009
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The Panic of 2008 Deterioration in employment conditions. Pullback in consumer spending. Decline of industrial production. Retreat in capacity utilization. Falling capital expenditures. These measures are objective, all-too-familiar indicators of recessions. They emerge during periodic troughs in our economic history. They are thought by most observers to be part of the business cycle. The decennial recessions of 1981-82, 1991-92, and 2001-02 were of differing causes and consequences. But they were alike in one key respect: They were extremely disruptive to countless workers, businesses, and communities. In the case of the United States, these periods were endured, and growth resumed apace, matched by new opportunities. The march of growing prosperity, however imperfect and interrupted, continued. 1 Fear. Breakdown in confidence. Market capitulation. Financial turmoil. These words are different, not just in degree but also in kind. They are more normative, but no less consequential to the real economy. They are indicative of panic conditions. In panics, once firmly held truths are no longer relied upon. Articles of faith are upended. And the very foundations of economies and markets are called into question. Some economists, market participants, and historians--not so long ago--were prepared to relegate these highly charged descriptions of despair to the dustbin of history. Government policies improved, understanding of economics deepened, and markets found a more sustainable equilibrium, or so it was thought. The period of the past 16 months is already well chronicled in the popular lexicon as a recession. The recent data are consistent with the view that this recession will endure longer and be deeper and broader than most. Characterizing the current period as a "recession" is still wanting, insufficient in some important respects. In my view, this period should equally be considered a panic, one that preceded, if not made more pronounced, the official recession. Hence, the Panic of 2008, which preceded the calendar year, is a more revealing description of the recent economic and financial travails. As I will describe, panics involve generalized fears--often related to financial firms--that magnify economic weakness. The encouraging news, I should note, is that panics end. And this panic is showing meaningful signs of abating. The storied panics in U.S. economic history were generally marked by
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