ABSTRACT
The recession of 1990-91 could have been much worse, had it not been for the exceptionally accommodative policy stance of the Fed during those two difficult years. This accommodation allowed a large number of borrowers to refinance their debts at lower rates and gave troubled banks the opportunity to rebuild their depleted capital base. In this way the U.S. central bank managed to prevent a serious financial crisis from spinning out of control. But the breathing space provided by monetary easing did not remove the underlying conditions of financial instability that had triggered the credit crunch in the first place, and the weight of these conditions continues to be felt across the U.S. economy. It is that financial-constraint aspect of our current slow-growth pattern that we focus on in this chapter.
