After experimenting with new tools, it was the development of national accounts by economists like Clark in the United Kingdom and Kuznets in the United States that gave policymakers a first real grip on of how the economy was doing. It was a faulty measure – and remains so to this day – but it was the best possible solution at the time.
Second, sharply lower bond prices implied by the much higher interest rates associated with disrupted bond markets would cause significant losses in the portfolios of financial and non-financial sectors; for banks, this would reduce their ability to provide loans to the economy. This is what we call the balance sheet channel. 3.