Greenspan on the 90-91 recession. US is Still in a Credit Crunch
"However, this strong economic growth was not to last. As the 1980s came to an end, the US economy slowed dramatically, and by the early 1990s tipped into recession. To make matters worse, the banking system was in turmoil, with hundreds of small and medium-sized banks failing and giants like Citibank and Chase Manhatten in distress. Meanwhile, the real estate boom had collapsed, causing even more pain."
"The inevitable collapse of the real estate boom really shook the banks. Uncertainty about the value of the real estate collateral securing their loans made bankers unsure how much capital they actually had—leaving many of them paralyzed, frightened, and reluctant to lend further. Big businesses were able to tap other sources of funds, such as innovative debt markets that had sprung up on Wall Street—(note: this is likely to be securitization and shawdow banking)a phenomenon that helped keep the 1990 recession shallow. But small and midsize manufacturers and mer-chants all over America were finding it hard to get even routine business loans approved. And that, in turn, made the recession unusually difficult to snap out of. "
"Nothing we did at the Fed seemed to work. We'd begun easing interest rates well before the recession hit, but the economy had stopped responding. Even though we lowered the fed funds rate no fewer than 23 times in the three-year period between July 1989 and July 1992, the recovery was one of the most sluggish on record. I would see President George Bush every six or seven weeks, usually in the context of a meeting with others but sometimes one-on-one. Before long, the administration began blaming its troubles on the Fed. Supposedly we were choking the economy by keeping the money supply too tight."
"When the recession hit that fall, the friction only got worse. 'There has been too much pessimism,' President Bush declared in his 1991 State of the Union address. 'Sound banks should be making sound loans now, and interest rates should be lower, now.'"
So the last credit crunch the US has had was saved by a new high in the US credit bubble made through securitization and shadow banking. This time the game is up, the Fed Senion Loan Officer survey still shows bank loan standards are being tightned across the board a weak jobless recovery looks like a likely outcome. The unemployment rate went up almost 1% after the last 2 recessions were declared over. It looks likely the current one will see unemployment reach 11%