This is from Rogoff:
The phrase “Great Recession” creates the impression that the economy is following the contours of a typical recession, only more severe – something like a really bad cold. That is why, throughout this downturn, forecasters and analysts who have tried to make analogies to past post-war US recessions have gotten it so wrong. Moreover, too many policymakers have relied on the belief that, at the end of the day, this is just a deep recession that can be subdued by a generous helping of conventional policy tools, whether fiscal policy or massive bailouts.
A more accurate, if less reassuring, term for the ongoing crisis is the “Second Great Contraction.” Carmen Reinhart and I proposed this moniker in our 2009 book This Time is Different, based on our diagnosis of the crisis as a typical deep financial crisis, not a typical deep recession. The first “Great Contraction” of course, was the Great Depression, as emphasized by Anna Schwarz and the late Milton Friedman. The contraction applies not only to output and employment, as in a normal recession, but to debt and credit, and the deleveraging that typically takes many years to complete.
Note that monetary policy is not mentioned alongside “fiscal policy and massive bailouts”.
And he goes on to say that:
In my December 2008 column, I argued that the only practical way to shorten the coming period of painful deleveraging and slow growth would be a sustained burst of moderate inflation, say, 4-6% for several years. Of course, inflation is an unfair and arbitrary transfer of income from savers to debtors. But, at the end of the day, such a transfer is the most direct approach to faster recovery. Eventually, it will take place one way or another, anyway, as Europe is painfully learning.
Why talk about inflation, the dreaded word in the post “Great Moderation” world? Why not say “the Fed should strive to increase nominal spending by 7% or 8% per year until it brings nominal spending to a stated level and let the “chips” (the breakdown of spending between inflation and real growth) fall where they may?
In 1933 FDR got things going (later aborted by NIRA and still later by the Fed´s obsession with inflation) by setting a price level target and getting off gold.
At the present time, the view of Rogoff and many others that this is a balance sheet crisis, has done a lot of damage (the thought that only “time will heal” is prevalent) and many at the FOMC are fearful of inflation despite what´s happening in the real economy. But as reported today by the Commerce Department:
PCE price index — The price index for PCE decreased 0.2 percent in June, in contrast to an increase of 0.2 percent in May. The PCE price index, excluding food and energy, increased 0.1 percent, compared with an increase of 0.2 percent.
All in all it´s a Depression, albeit not a “Great” one, yet.
Update (8/3) Kevin Hasset joins the “This time is (not) different bandwagon. Not a single reference to Monetary Policy. It´s all about the futility of Fiscal Stimulus:
Obama administration officials should have known all this as they set out in 2009. Financial crises inevitably create lengthy periods of slow economic growth, as research by economists Carmen Reinhart and Kenneth Rogoff has shown. The typical duration of the employment downturn after a financial crisis is 4.8 years. Another study by Ms. Reinhart and her husband Vincent Reinhart found that economic growth rates tend to be lower for as much as a decade after financial crises.
It´s historical determinism!