Is subprime a pseudo or real systemic crisis?

I came across this paper from Michael Bordo et al which could be used to answer the most important question/debate going around- Is subprime crisis going to result in a recession in US economy? It says:

A true financial crisis is a banking panic or a stock market crash, where depositors and investors fear that means of payment will be unobtainable at any price.

Other events including banking panics and stock market crashes are really pseudo crisis. These include, deflations, disinflations, distress of large non-financial firms, abrupt declines in asset prices and speculative attacks on fixed exchange rate regimes.. All these events represent losses of wealth in particular sectors of economy, but none involve a scramble for high powered money , the hallmark of a real financial crisis

The paper looks at past crises and classifies them into pseudo and real crisis. Like 1987 crisis was more pseudo than real.

How about subprime? We need to wait for more data to call it a real crisis. We can’t call it pseudo either as it did lead to freezing of the payment system and Central banks had to provide huge liquidity to stabilise the system.

Addendum (19 Mar 2008):

This crisis looked like a pseudo crisis earlier but is now a real one.

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One Response to “Is subprime a pseudo or real systemic crisis?”

  1. Obama should not call this crisis as Depression « Mostly Economics Says:

    […] this crisis is unprecedented and they could never imagine facing a crisis as deep as this. I recall postingabout a paper from Bordo et al which categorised crisis as pseudo or real. The 2007 crisis looked […]

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