Another Credit Crisis and Recession Next Year?

This post is a response to a Wall Street Journal article published by Andy Atkeson, a UCLA Economics professor. His article discusses the relationship between bank stock volatility and economic downturns. He alludes to the Great Depression (1929-1933) during which time volatility reached 9%. He notes that bank volatility has been over 3% in recent days, which he envisions as a warning signal for another disastrous financial panic. In connection to our class, this article reminded me about how the lack of consumer confidence in mid 1930 led to a series of bank panics. In the case of the 1930 bank panics, this caused consumers to convert their deposits into currency, which jeopardized the number of loans that banks could make, and in turn, lowered the money multiplier and the money supply. In a similar sense, Professor Atkeson discusses how the lack of consumer confidence in the soundness of bank balance sheets is reflected in the volatility of the stock market.