Abstract and Keywords
Historically, financial crises have been commonplace. Why did the latest episode almost derail the world economy? The macroeconomics developed by John Maynard Keynes and his close followers provides the only plausible set of answers, including rising income inequality that spilled over into debt accumulation at the same time as household consumption rose, low real interest rates, massive expansion of financial assets and liabilities as investors borrowed heavily (increased leverage) to buy assets with rising prices, and an ample supply of imports and capital inflows from the rest of the world to the United States. In an accommodating political economy environment these factors linked the real and financial sides of the US economy to create the crisis.
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