An economist’s explanation of the credit crunch

The credit crunch has upset the world-view of modern economists. As the Federal Reserve has discovered, the conventional tools aren't working how the textbooks say they should, says Robert P. Murphy.

The credit crunch has upset the world-view of modern economists. As the Federal Reserve has discovered, the conventional tools aren't working how the textbooks say they should, writes Robert P. Murphy

With day after day of bleak news regarding the credit crunch and in particular, articles that constantly remind us that the Fed's recent actions haven't been tried since the Great Depression the average American is understandably perplexed. And although what I'm about to admit may not surprise many readers, it nonetheless may worry them further: most economists don't have a clue what's going on either.

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