The Central Role of Credit Crunches in Recent Financial History

Albert M. Wojnilower

AMW

Albert M. Wojnilower First Boston Corporation

Discussants: Benjamin M. Friedman and

BMF

Benjamin M. Friedman Harvard University

Franco Modigliani

FM

Franco Modigliani

THIS PAPER addresses, from an unusual perspective, some key aspects of the interactions between financial markets and the real economy in the United States over the past thirty years. The emphasis is on the upper cyclical turning points in general business. The theme is to show how the credit bottlenecks that accompanied and in fact triggered these turning points prompted the removal of the confining constraints and thereby shaped the cycles and inflation of the future. The vantage point is that of a trained economist who has spent nearly all this time in a ringside seat in the New York financial community—the first dozen years in the Federal Reserve Bank of New York and the remainder in commercial and investment banking. Perhaps some of the observations offered in this paper may eventually be useful in a more formal setting.