Jack Rasmus

The following is the 4th and final posting from my 2010 book, ‘Epic Recession: Prelude to Global Depression’, which provided my analysis of the 2008-09 Great Recession (which I call an ‘Epic’ recession). Understanding that event is of importance to better understanding the current emerging ‘Great Recession 2.0’ of 2020. As parts 1-3 argue, the key to understanding Great Recessions is to understand how financial cycles interact with real business cycles, and how both exacerbate the other in a downturn. In 2008-09 the mutual feedback effects were from financial cycle crash to the real economy; today’s Great Recession 2.0 has inverted that causal relationship. We have a real side of the economy crashing. Will it then precipitate a financial crisis that will in turn exacerbate the real economy contraction is the question of the day. The US central bank, the Fed, is desperately throwing trillions of dollars to bailout not only the banks and shadow banks (as in 2008-09) but the entire corporate-business non-financial sectors of the economy as well. It is a historic experiment. There is no guarantee, however, that the massive liquidity (free money) injection will prevent a financial crisis emerging. As we write, today a major warning sign the financial implosion may not be prevented is evident in the sheer collapsing of global oil prices and financial asset markets on which global oil is based. How and will this financial oil market crash spill over to other sectors of the financial system remains to be seen.

At the center of analysis of how financial instability precipitates a real more severe downturn of the economy (or how the latter precipitates a financial instability and crash) is the concept of ‘Fragility’. The debt-deflation-default nexus described in Part 3 leads to a condition of growing ‘fragility’ in the capitalist system. How that works is described in Part 4 to follow. Fragility is a condition that measures how prone, sensitive, or likely the system is approaching a financial and/or real crash once again. Debt levels and rate of change is important. But equally important in estimating fragility is the ability of businesses, households, government entities to service that debt with revenues, income, taxes in order to avoid default. Also critical are non-money decisions by govt, business or households to delay, suspend, or expunge debt servicing, in whole or part.

How fragile then is the current US and global economies? Very much so. Within the next 3 to 12 months it will become clear if another financial instability event will occur. If so, it will certainly be far worse than 2008-09.

Readers should note that the following Part 4, and the preceding Parts 1-3, represent my thinking about Great Recessions 10 years ago. My views have evolved. Five years ago I wrote a subsequent book, ‘Systemic Fragility in the Global Economy’, Clarity Press, January 2016, as an update. My writings on the current crisis, 2020, as it emerges and evolves represents my most current views on the topic of Great Recessions–and how they may transform into bona fide Great Depressions. (My forthcoming book later this year is entitled: ‘The Virus and the 2020 Great Recession’)



PART 4 of ‘The Dynamics of Epic Recession’, from the book, Epic Recession: Prelude to Global Depression, 2010.

Debt-Deflation-Default Nexus and Financial Fragility

This dynamic interactions and feedback effects between debt-deflation and, as debt-deflation intensifies, between debt-deflation and default as well, result in a further deterioration of both financial and consumption fragility.

Recall that both forms of fragility are a function of levels of debt, of the quality (terms and cost) of that debt, and of cash flow (business) or disposable income flow (consumer)—all three factors ultimately combined in the ratio of debt servicing to available cash-income flow. As debt rises or deteriorates, financial fragility rises; as the latter (cash flow) slows or declines, financial fragility rises as well.

Asset deflation drives a company toward more debt accumulation, thereby raising financial fragility. When a company’s assets are declining in value, it is not able as a rule to raise liquidity through new stock issuance. Existing stock prices in such situations are normally stagnant or declining due to public negative perceptions of the company’s future economic performance potential. Thus that door to raising cash flow to make debt payments is largely closed. In addition, the company lacks by definition necessary internal funds in such conditions. If it had sufficient internal funds it wouldn’t have to sell off assets in the first place to make debt payments.

Without internal funding or stock equity funding available, the company is necessarily driven to debt financing. Declining asset prices thus mean the company must seek more debt financing in order to make debt servicing payments. New levels of debt are added to existing debt. And if company is already overloaded with debt in the first place, new debt is normally only obtained at greater cost than old debt, which means debt quality declines and fragility rises as well. The company becomes even more financially fragile over time from debt, as asset deflation eventually forces it to acquire more debt.

But product price deflation similarly results in more financial fragility. Price deflation works on financial fragility from the cash flow side. If a company chooses to reduce product prices instead of selling assets to raise necessary cash flow, it may grow revenue and improve cash flow in the short run in order to service debt payments, but it does so by weakening its revenue base and future cash flow in the longer run. Albeit not as rapidly as asset price deflation, product price deflation therefore also eventually results in reduced cash flow to finance debt and consequently a deterioration in financial fragility.

The company can buy some time from having to resort to asset or product deflation. It may avoid reducing product prices initially by reducing planned real investment or by cutting production and operating costs, especially labor costs. Yet all three—suspending planned investment, cutting labor costs, and cutting other costs of production—also translate sooner or later into reduced revenue and cash flow. Wage cutting and wage deflation may serve as a temporary substitute for price deflation and thus delay a further deterioration of financial fragility in the short run. But wage deflation will eventually result in less productivity and thus higher costs and less cash flow. Cutting back on new investment and production also reduces productivity, with the same effects on rising costs and less cash flow. Because wage deflation’s impact on cash flow is less immediate than product price deflation, that is why businesses typically pursue wage deflation first before product price cutting. And wage cost reduction via layoffs before other forms of wage cutting, since layoffs affect productivity of remaining employees less than wage cutting for those that remain.

To summarize, there are a combination of effects from the interaction of debt-deflation-default that result in a deterioration of financial fragility. Sell off assets is the quickest way to raise liquidity with which to make debt service payments. But asset sales and asset deflation eventually lead to the need to raise more debt, locking the company in a cycle of asset sales to offset rising debt. Reducing product prices are an alternative to raising cash to cover debt payments. But it takes longer than asset sales to raise the cash and is also more uncertain. It also means the company’s real debt servicing in effect rises. Paying debt by product deflation means raising real debt. Companies if possible therefore initially turn to shutting down planned real investment and cutting operating costs, especially labor costs—first by reducing hours of work, then layoffs, then other forms of wage cuts. However, all three of these measures may result in immediate cash to service debt but ultimately result in a reduction of cash flow. All forms of deflation therefore exacerbate debt and debt servicing problems. In the real world, companies with rising debt servicing stress and facing default undertake all measures in some combination, as well seek to raise more debt (even if more costly) and delay if possible making debt payments.

Debt-Deflation-Default Nexus and Consumption Fragility

This situation is not dissimilar for consumers and consumption fragility. Consumer debt takes the form of mortgage debt, installment loan debt like auto loans and other big ticket items, credit card debt, student loan debt, and other forms of personal loans and debt. While not as massive as financial institution debt accumulation, or non-financial corporate debt growth, in the ten years leading up to the 2007 financial bust, household mortgage debt nonetheless increased by around $7 trillion in the U.S. and consumer credit from around $1.3 trillion to $2.5 trillion.

The ratio of household debt to income in the U.S. rose to 140% in 2007 and two years later still remains around 130%. This compares to the ratio’s long run historic average of around 100%, last recorded in the late 1990s. What this means is that consumers have been unable to reduce debt in any significant way since the financial crisis and recession began. They will likely remain unable to do so for some time, especially given continuing trends involving home foreclosures, rising job loss, rising credit card rates and terms, record income losses for the millions of very small unincorporated businesses, negative wealth effects due to one fourth of home values now ‘under water’, the general failure of 401k retirement plans to recover lost values—to name but the more significant factors continuing to impact consumer disposable income (i.e. consumer cash flow). The problem for consumption fragility is therefore debt, but even more fundamentally weak disposable income—especially for the bottom 80% of the households whose ratios are much worse than the 130%-140% noted above, which includes wealthy households as well as the bottom 80%. Furthermore, for the 80% at least, the problem of rising debt is a consequence, to a significant extent, of declining real disposable income.

It is important to note that this consumer debt runup was not the result of some profligate cultural attitude change. It’s not primarily that American consumers all of a sudden became reckless spendthrifts. At least not for the average American middle and/or working class family in the bottom 80% households, and in particular for the roughly 110 million who constitute the category of ‘non-supervisory production and service employees’. Their resort to credit is one of few ways that 110 million maintained their standard of living in the face of stagnating real weekly earnings and incomes over the past three decades, and since 2000 in particular. Real weekly earnings in 2007 for this group, who constitute the vast majority of consumers in the economy, were less in 2007 than in 1982, a quarter century earlier, when measured in terms of 1982 dollars. Working class living standards were propped up by credit due to a long period of wage and earnings stagnation.

The other ways in which stagnating real income were offset for a quarter century include this group’s addition of hours worked on a family basis, as spouses were sent into the labor force in record numbers and second part time jobs were taken on by primary heads of households. The group also reduced savings and even depleted retirement funds to maintain living standards. They entered the recent crisis and Epic Recession with very little income reserves and very heavy debt loads—i.e. historically severe consumption fragility. It is therefore not surprising that overall consumption in the U.S. economy nearly collapsed in late 2009 when this group was heavily impacted by massive reductions in work hours, millions of layoffs for six months running, an acceleration of wage cutting in the form of furloughs, elimination of paid leave, benefit cuts, etc., plus an escalation of home foreclosures in the millions and tens of millions of home values thrown ‘under water’. Something similar in terms of growing debt driven and income stagnating consumption fragility occurred in the 1920s through 1929-1931, according to other studies. The banking panic of September-October 2008 was an indicator of the fracturing of financial fragility. But less attention has been (and unfortunately still is) given to the fracturing of consumption fragility that quickly followed in less than a month in late 2009 as mass layoffs began.

On the income side of deteriorating consumption fragility, causes of the real earnings stagnation since the 1980s have been various: de-unionization of the general work force, atrophy of the real value of minimum wage, free trade and the relocation of much of the high paying manufacturing sector offshore and replacement of higher paying export jobs with lower paying import employment, shift from manufacturing to low paying service jobs, accelerating displacement of labor with technology, major shifts in labor market conditions from full time permanent work to part time-temporary ‘contingent’ work, shifting of costs of health care and retirement from businesses to workers, and other lesser but numerous real developments—all having some negative effect on wage and earnings levels for the 110 million in particular. These real causes better explain the shift of consumers to record levels of debt than do arguments based on consumer attitude changes.

The rising debt impact on consumption fragility is obvious. Less so is the effect of deflation. Asset deflation has little influence on consumption fragility for the ‘bottom 80%’ households, since they hold virtually no assets apart from some minor amounts in pension plans, which have declined in total value and thus had some effect. Product price deflation does not impact consumption fragility directly, but does so indirectly. Companies that engage in product price cuts to cover debt almost always introduce cuts in operations costs and labor costs. Product price deflation almost immediately results in wage deflation—i.e. layoffs and wage cutting that directly impact disposable income. Thus, rising jobless, reduced hours of work, and wage and benefit cuts translate directly into rising consumption fragility from the disposable income side.

Default for households and consumers take the form of foreclosures, auto repossessions, credit card suspensions and card rate charges and fee increases, garnishment of pay for student loan default, credit score reductions and elimination of credit availability, and ultimately in personal bankruptcy filings. Default in any of the preceding forms has a major effect on the individual and household’s consumption fragility.

As consumer fragility deteriorates from rising debt, deflation, and default it feeds back upon all three elements of the critical debt-deflation-default nexus. Increased fragility means inability to cover debt payments in a timely manner and need to borrow further to supplement insufficient household income flow. It means less consumption demand, which results in further downward pressure on product prices. And in severest situations, it translates into default—for either debt payments due on mortgages, autos, student loans, or credit card payments.

As in the case of financial fragility and its interaction with the debt-deflation-default nexus, consumption fragility similarly feeds back on the elements of the nexus, which, in turn, result in a further deterioration of consumption fragility. A dangerous potential downward spiral may subsequently set in.

Financial and Consumption Fragility Feedbacks

Financial fragility and consumption fragility also mutually determine each other, while each simultaneously reacts upon debt-deflation-default as well.

The main financial fragility to consumption fragility transmission mechanism is layoffs, hours of work reduction, and wage cutting for the remaining employed. To recall, non-financial companies facing increasing difficulty in making debt service payments may either sell assets, reduce product prices, or cut labor and other production costs; in short, resort to deflation in one or all the three forms in order to raise cash flow to service debt. Reducing operations and, in particular, labor costs are the quickest way to supplement liquid assets on hand. Selling inventories of product at lower prices and resorting to asset firesales may serve the same purpose. But those alternatives make it more costly and difficult to raise further business debt if that proves necessary. It is generally easier and less costly to replace labor than it is to replace assets and inventory. So businesses typically resort to wage deflation first (although a company in a severe economic situation may undertake all three measures simultaneously).

Wage deflation in all three forms—i.e. layoffs, hours reduction, and direct wage and benefit cuts—serves to reduce real disposable income for the company’s work force and the labor force at large. Consumption fragility subsequently grows. When wage deflation occurs broadly in scope and magnitude, when tens of millions are laid off and converted to part time, when benefits cuts and furloughs, bonus cuts, paid leave reductions, and other forms of wage cutting occur, the increase in consumption fragility becomes widespread and a major economic factor.

Financial fragility feeds consumption fragility from the debt side as well, from the direction of a contraction in bank credit and lending to consumers, which means a higher cost of borrowing for consumers. For example, credit card rates and fees rise for consumers, both for existing and future credit. Borrowing rates for consumers attempting to refinance mortgages that are delinquent, or for home values that are ‘under water’ rise as well. The unemployed consumer must pay higher rates for auto loans. Penalties for late payments on loans and credit cards are increased more aggressively and frequently. In general, the costs of credit for consumers who have no alternative but to raise more debt to cover costs becomes more expensive, while at the same time their real disposable income may be declining. Both ‘sides’ of consumption fragility therefore deteriorate as a consequence of financial fragility.

A reverse effect can also occur—consumption fragility may exacerbate financial fragility. The most obvious example is consumers who, as homeowners, default on mortgages resulting in foreclosures. Banks and financial institutions must thereafter write down or write off the loss from the defaults. Their financial fragility rises. More than a $ trillion in subprime and other mortgage write offs have occurred in the U.S. thus far in the cycle.

Credit card debt is another consumption to financial fragility mechanism. Consumers defaulting on credit card debt results in credit card companies ‘charging off’ the debt, thereby themselves becoming more financially fragile. The corporate rating agency, Moody’s Inc., estimates, for example, a 12% credit card charge off rate by 2010 in the U.S. That’s nearly $150 billion in credit card loss write offs. Card companies in response have begun raising rates on consumers still with cards to make up for the losses, even charging interest to card holders who pay off their balances monthly—all of which results in reducing consumer disposable income and increasing consumption fragility. With credit cards as a source of credit sharply reduced, and cost of usage rising rapidly, consumers are driven to default on other debt. According to some estimates, the ‘big five’ credit card companies, in order to reduce their own financial fragility, plan to cut $2.7 trillion in credit card lines of credit, that is, by more than half the estimated $5 trillion total available card credit outstanding. These draconian measures by big credit card companies represent efforts to, in effect, transfer their own financial fragility to consumers in the form of raising consumption fragility.

Just as the Federal Reserve and U.S. Treasury’s bailout of the big 19 banks represents a transfer of bank financial fragility to the U.S. government’s balance sheet, the response by banks and financial institutions, like credit card companies, to make consumers pay more for remaining credit represents a transfer of banks’ and card companies’ financial fragility to the consumer and consumption fragility.

What is described in the preceding paragraphs is not only how consumption fragility can exacerbate financial fragility, or how financial fragility in turn exacerbates consumption fragility, but how the two may continually impact each other in a negative fashion. A continuing, mutually sustaining process may potentially occur. In Epic Recessions this ‘mutuality’ of process takes place to some degree. When it especially intensifies, the momentum toward depression grows. The linkage, or economic glue, between the two forces of fragility are the mechanisms of debt-deflation-default, moreover.

Fragility and the Real Economy

Financial and consumption fragility not only partially determine each other and provide feedback on debt-deflation-default processes, but both forms of fragility drive the decline in the real economy as well. Both forms of fragility, in different yet similar ways, negatively impact real economic indicators like consumption, real investment, industrial production, exports, and employment.

Financial and consumption fragility are also the key aggregate variables that connect the processes represented by the interactions between debt-deflation-default, on the one hand, and real economic indicators like investment, consumption, production, exports, employment on the other. It is financial and consumption fragility that determine the depth, degree and duration of those indicators that define the characteristics of Epic Recession described in chapter one.

The origins of Epic Recession ultimately lie in the relationships between liquidity, the global money parade, and the growing relative shift to speculative investing. But the dynamics and the evolution of Epic Recession lie in the relationships between speculative investing, the processes of debt-deflation-default, and the conditions that define financial and consumption fragility. The processes and conditions of fragility appear, i.e. are reflected, in real economic indicators such as consumption, investment, production, export, and employment. But the essential forces and variables are those addressed in this chapter, those that produce the changes in scope and magnitude of those economic indicators that measure and differentiate Epic Recession from normal recessions.

Perhaps the most obvious impact of fragility on the real economy is the direct, negative effect of consumption fragility on the level of consumption demand in the economy. Consumption represents more than 70% of the U.S. economy today. Growing consumption fragility slows consumption over the long run, since by definition it signifies both rising debt servicing requirements and lower real disposable income. As was shown in chapter two, consumption fragility for the vast majority of consumers in the U.S. today, the ‘bottom 80%’ households, has been rising significantly due both to stagnating or declining real disposable income as well as rising debt levels and debt servicing requirements. After two years since the start of the current economic crisis, consumer debt to disposable income as a percentage has barely fallen, from around 140% to only 130%. And that’s for all households, including the top 20%. Consumers are clearly experiencing great difficulty in retiring debt and/or raising disposable real income.

Adding consumer debt in the short run to make debt payments—which has been the rule for two decades now for many consumers—only temporarily addresses the problem of consumption fragility in the short run, while actually exacerbating that fragility longer term. Increasing debt as a way to offset weakening real disposable income not only represents a temporary solution to weakening disposable income, it is at the same time a solution that exacerbates the problem of disposable income in the longer run. Assuming more debt may raise consumer income flow to enable servicing debt in the near term, but more debt raises the level of cash-income needed to pay for what will necessarily become a still larger debt servicing requirement in the longer term. Over the longer term then, rising debt actually reduces disposable income and, as a consequence, steadily slows consumption demand over time. That is why taking on more debt as a solution to lagging disposable income and consumption—the practice in recent decades—usually results in the need to take on even more debt over time. Growing consumption fragility is a reflection of this dilemma that exists in the contradictory relationship between debt and real disposable income over time.

Consumption fragility not only has a long term negative impact on consumption demand, but in times of economic crisis consumption fragility may deteriorate rapidly. When it does, it precipitate an abrupt shift in consumption demand to a lower level than had existed previously, at which it may then more or less stabilize for an extended period. This condition may be described as a ‘fracturing’ of consumption fragility, following which its feedback effects on other processes and variables intensifies.

There is an additional effect. A fracturing of consumption fragility, and consequent decline in consumption, also reduces business planned real investment, production, and in turn employment. Business expectations may shift, anticipating a lower level of future sales and rate of return (profitability) from consumers as consumption becomes more difficult to sustain. In this scenario, consumption fragility feeds back on economic indicators through the business-investment channel, as well directly via consumption as described previously. Weakening consumption can also drive companies toward allocating a greater proportion of available liquid assets to speculative forms of investing, since speculative investing depends less on (now weakening) domestic consumer demand and more on (now growing) worldwide global investor demand. That too diverts liquidity from real investment that might otherwise result in increased production and employment. So consumption fragility affects consumption directly, as well as real investment indirectly as that real investment slows or is diverted in expectation of lower levels of consumption.

Like consumption fragility, financial fragility also has both direct and indirect effects on the real economic indicators. It too may ‘fracture’ from time to time. Financial fragility fracturing is representing by banking panics, such as occurred in September-October 2008 in the U.S. Just as in the case of fracturing of consumption fragility and the abrupt decline in consumption spending that follows, financial fracturing is represented by an abrupt decline in bank spending—i.e. bank lending—that follows the banking panic. That bank lending, like consumer spending, may settle in at a lower level for an extended period—until policies sufficiently generate a return to higher levels or until another ‘fracturing’ event takes place. Whether consumption or financial fragility, fracturing does not take place in normal recessions. Depressions are characterized, in contrast, by a series or sequence of repeated fracturing events.

Considering once again the possible specific impacts of financial fragility on the real economy, an abrupt decline in a company’s cash flow amidst rising debt and debt servicing costs will first translate, in most cases, into a suspension of real investment projects in progress and a cancellation of future planned investment. Both actual and planned investment are thus negatively impacted from the outset should cash flow drop precipitously, especially when a recession is underway or imminent. A similar suspension and cancellation of investment may result from a company raising significant amounts of additional debt. Either/both a sharp rise in debt or abrupt fall in cash flow can have the same investment suspension effect. Financial fragility thus tends to have a first, and often immediate, effect on real investment. Investment is suspended or cancelled to divert needed liquidity to cash flow and debt servicing.

Concerning current production and output, it is typically the next casualty of financial fragility. Cutting operating costs, in particular labor costs, take a little longer to implement but are also preferred means by which to generate cash flow. Renegotiating contracts with suppliers, delaying payments for materials, reducing hours of work, converting full time employees to part time status, layoffs, and eventually other forms of direct wage reduction are alternative approaches to raising cash flow. But these measures have consequences in turn for consumption and consumption fragility. It increases the latter and reduces the former, for both those laid off and those who remain working with less income flow. So financial fragility works directly on investment, as well as indirectly on consumption by causing a further deterioration of consumption fragility by lowering disposal real income.

After reducing investment and production, after cutting operating and labor costs, a company that still faces severe problems of financial fragility—whether due to a collapse of sales revenue, a major credit contraction, a refusal by banks to extend credit, or lending at sharply higher interest rates—that company may also have to sell assets at reduced prices or sell inventory of products at below market prices in order to quickly raise necessary cash-flow. The need to raise additional cash might also result from a particular large collapse of asset values on the company’s balance sheet as a result of prior bad investments that failed. Resorting to deflation solutions involving asset firesales or product inventory price cutting has a long run negative impact on investment. Selling assets usually means selling the company’s better, more productive and performing assets. Those who buy the assets of a stressed company generally are not interested in buying the worst performing, but rather the best performing, assets. The loss of preferred assets usually means a weakening in productivity and thus rising costs in the longer run—with greater negative pressure on cash flow. Selling product inventory at below market prices may also initially raise additional cash, but with longer run negative consequences. Cash flow is obtained in the short run, at the expense of profitability and therefore cash flow levels in the longer run.

If sufficiently widespread among sectors and industries of the economy, the wage deflation solution to financial fragility can also have long run, offsetting, negative consequences. Should mass layoffs occur across industries, hours of work reduced in general, and wage cutting spread as a rule, then consumer demand decline will have a feedback effect on investment, production, and employment levels once again as well.

The general scenario described is one in which financial fragility impacts investment negatively in a direct way in the shorter run, and investment is impacted negatively through consumption fragility and consumer demand in the longer run; conversely, consumption fragility directly affects consumption negatively in the short run, and consumption is impacted negatively through financial fragility and investment in the longer run. The two forms of fragility are in ways mutually reinforcing. They both together affect real indictors like investment, consumption, production, exports and employment levels.

These real indicators in turn feed back upon the general process, as well as through both forms of fragility. The cycle is reinforced by both financial and consumption fragility feeding back upon the threefold processes of debt-deflation-default. The latter, in turn, exacerbate financial and consumption fragility, and so forth.

What this all produces is a tendency for the real economy to proceed in a downward trend or cycle. That trend may not be perfectly smooth. That is, it may accelerate at times of fracturing, and may thereafter settle into an extended period of more or less stagnation. That stagnation may itself also not be perfectly linear. It may represent in a series of short, shallow economic growth periods, with which may occur similar short and shallow periods of economic decline. A ‘bumping along the bottom’ with periodic bounces up and weak bounces down.

From a policy perspective this scenario suggests that checking or containing Epic Recessions, and avoiding the extended stagnation or a further descent into depression, requires policies that directly confront the key variables of financial and consumption fragility, debt-deflation-default, and the shift to speculative investing. For banks, financial institutions, and business in general, it means debt must be ‘expunged’ and not simply offset with liquidity injections by central banks. It means cash flow needs to be stabilized, not allowed to swing widely due to speculative bubbles and busts. It means consumer disposable income must be restructured fundamentally. That cannot be accomplished without some fundamental redistribution of income on a permanent footing. Consumer credit must also stabilize and not be allowed to negate consumer income. Deflation in either of the three price systems is a requirement of sustained recovery. And defaults, consumer and business alike, must be prevented. Not least, the ultimate solution requires that the shift to speculative investment is reverse and the global money parade is eventually tamed.

The following three chapters address empirical evidence in the historical record of depressions and near depressions in the 19th and 20th century in the U.S. To what extent do the three great depressions of the 19th century conform to the analysis presented in chapters one through three? And what of the two closest examples of ‘Epic Recession’ in the U.S. in the 20th century—the financial crisis of 1907-1914 and its aftermath? And the initial phase of the depression of the 1930s, the 1929-1931 stage. Both constitute forms or ‘types’ of Epic Recessions that have occurred. How the current crisis and economic contraction, 2007-2009, qualifies as an Epic Recession is discussed, as is how it is similar and different from 1907 and 1929-1931.

The final two chapters confront the question of policy, solutions and programs. To what extent has the U.S. Federal Reserve, U.S. Treasury, Congress and the President provided solutions that confront fragility, the debt-deflation-default processes, and speculation and global money parade? Are they addressing today’s Epic Recession as if it were simply a moderately more severe normal recession? Our conclusion is they have not, are not, and will likely not correctly address the problem. If not, the dynamic of Epic Recession will continue. What is necessary to successfully address the unique character of the current crisis is suggested in the final chapter.