How could none of the economic genius who are selected or elected to help define the countries economic vision not see this coming. Jason Coronel could, and that was in 2002. This has happened before and almost the exact same way 20 years ago in Sweden. This is not just similar to what has occurred in our economy but the exact same in many instances. The The following is an excerpt of a thesis written by Jason Coronel about the collapse of the Swedish economy in the 1990's. page 10-11
"....The resulting deregulation in the domestic capital market would by the early 1990s result in disaster and plunge Sweden into one of the worst economic periods of its history.
From the mid ‘70s forward, Sweden embarked on a deregulation process that phased out most of its financial regulatory rules that had been in place since the decade after World War II. The reason for financial deregulation was due to the government’s continuously increasing budget deficits that required financing and the need to attract foreign private investment (Arter 1999; Bieler 2000). In 1985, the deregulation binge resulted in the removal of lending ceilings by banks (Bieler 2000). The resulting credit-led expansion boom caused by deregulation dramatically increased private sector borrowing and caused a speculative spree within the housing sector (Canova 1994; Moene and Wallerstein 1995). Real estate speculation led to inflated values for assets and property and increased domestic consumption. When the speculative boom ended in the early ‘90s, the massive decline in the value of property and assets triggered a sharp decline in private domestic consumption (Moene and Wallerstein 1995; Ramaswamy 1994). The resulting decline in aggregate demand in combination with a global economic contraction plunged Sweden into one of its worst economic downturns in history (Moene and Wallerstein 1995; Pontusson 1992). Unemployment from 1990 to 1993 was around 8 percent as Sweden suffered one of its worst economic periods since the Great Depression (Miles 1997). On top of the severe economic recession was a banking crisis in which the government was forced to save the banking industry from insolvency. The resulting demand for greater welfare provisions, in accordance with the government’s bailout of the banking sector created massive government deficits equaling to about 17 percent of GDP by 1994 (Miles 1997). The end result of domestic capital deregulation during this period was a catastrophe in two ways: capital deregulation was one of the main reasons for the calamitous early ‘90s recession and investment capital was wasted on unproductive property speculation and consumption (Hubers and Stephens 1998)."
The rest of his paper can be found at the [link].
Coronel, J. (2002). Foundations, decline and future prospects of the swedish
welfare model: from the 1950s to the 1990s and beyond. DePaul University.
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