Most made the mistake of treating the crisis as a cyclical shock and forecast a V-type growth snapback. They were prisoners of an excessive mean-reversion mindset: They acknowledged that growth was taking a huge hit due to severe financial dislocations, but they forecast that economic activity would bounce back strongly and inclusively.
Let us look:
The red line is the implicit deflator and its dip was quite V like. We are done pricing the 1973 gold default. We have discovered the pricing errors and will be charged interest. No big deal, but we will have another generational fiscal shock.
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