Guardian
February 13, 2012
During the latter part of 2008, central bankers around the world worried secretly that the death spiral was approaching. The concern was that it was too late to stop economies crashing. In the event, concerted international action on both monetary and fiscal policy prevented collapse – although they did get pretty darn close to the precipice.
Interest rates were cut to zero. Banks and even car companies were rescued. Massive amounts of liquidity were made available. There were tax cuts, cash for clunkers and even fridges, along with schemes to help the young unemployed. Plus the collapse came very quickly.
In the UK, then Chancellor Alistair Darling had only a few hours notice that the Royal Bank of Scotland was about to fail. The fear was that cash machines around the world would close, banks would fold and stock markets would tank within hours. This was a once-in-100-year shock: in my view, without such unprecedented intervention, unemployment rates in the US and Europe could well have risen to over 24% – which is where they are already in Greece and Spain.
Stimulus worked, simple as that.
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