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Extraordinary Measures for Ordinary Times

The legacy of the 2008 financial crisis ten years later is that it put a premium on unconventional measures. As policymakers scrambled in search of big guns for big problems, they set the stage for the return of an old character: a strongman willing to pull the trigger.

MUNICH – It has been ten years since the financial crisis went international. Until July 2007, the subprime mortgage crisis seemed like it was strictly a problem for the United States. But then Landesbank Sachsen and IKB Deutsche Industriebank, two publicly-owned regional German banks, had to be bailed out, and it suddenly became clear to policymakers just how interconnected the global financial system had become.

The legacy of 2007 is still with us. Its most devastating and destructive effect was to put a premium on unconventional monetary measures. Unfortunately, when policymakers scrambled in search of “big bazookas” ten years ago, they set the stage for the return of an old character: a strongman willing to pull the trigger.

To be sure, at the height of the financial crisis, politicians were right to conclude that they could not rely on business as usual. Central banks needed to provide liquidity on a massive scale, and governments needed to complement those monetary-policy efforts with fiscal expansion. Accordingly, China and the US, in particular, launched large-scale stimulus programs in 2008 and 2009, respectively.

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