In an April 6, 2009, Wall Street Journal op ed titled “From Bubble to Depression,” Stephen Gjerstad and Vernon Smith argue that both The Great Depression and today’s recession were caused by enormous consumer debt, and most particularly mortgage debt. To quote:

. . . the financial system has suffered a blow unlike anything since the Great Depression, and the source is the weak financial position of the people holding declining assets.

It appears that both the Great Depression and the current crisis had their origins in excessive consumer debt—especially mortgage debt—that was transmitted into the financial sector during a sharp downturn.

This op ed brings to mind, yet again, the prescience of Sir John Templeton who in 2003 expressed uncharacteristic pessimism about the economy because of his concerns about the housing sector. In the interview with Robert Flaherty in Equities magazine cited below, Sir John states that 


Every previous major bear market has been accompanied by a bear market in home prices. . . . This time, home prices have gone up 20%, and this represents a very dangerous situation. When home prices do start down, they will fall remarkably far. In Japan, home prices are down to less than half what they were at the stock market peak.

Sir John adds,

A home price decline of as little as 20% would put a lot of people in bankruptcy.

Sir John then connects the mortgage bubble with the consumer debt crisis and the ramifications for the economy and the stock market. What Gjerstad and Smith observed in 2009, John Templeton predicted six years earlier.