This time is different

Has something fundamentally changed about the economy? Yes, if the current economic cycle is compared with those of the 2000s. 

The impact of rates depends crucially on how they are transmitted more broadly. 

In the 1990s and 2000s, financial innovation, deregulation and globalization made the financial system fragile and prone to asset booms and busts. When the Fed tightened monetary policy in 1999-2000, it deflated a bubble in tech, media and telecommunications stocks and bonds, which then dragged down business investment and hiring. 

When it tightened in 2004-06, it deflated a housing bubble, which then triggered a wave of mortgage defaults and a devastating financial crisis.

Nothing like that has happened yet. 

The deleveraging and reregulation that followed the financial crisis has made lenders more conservative and less vulnerable. Stock and property valuations haven’t gotten as extreme as in 2000 or 2006. Households and businesses have relatively strong balance sheets, in part thanks to pandemic-era stimulus.

Greg Ip WSJ 9 March 2023

Silicon Valley Bank collapse has echoes of 2008. 

Here’s why things are different this time

CNN 10 March 2023

Banks Need to Worry About Shadow Banks

Paul J. Davies Bloomberg 17 november 2022


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