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Different?
The academic evidence on Keynesian growth effects of fiscal deficits is thoroughly inconclusive.
Kenneth Rogoff, July 20 2010
The writer is professor of economics at Harvard University and co-author, with Carmen Reinhart, of This Time is Different: Eight Centuries of Financial Folly
Aggressive fiscal stimulus in the run-up to the financial crisis was reasonable as part of an all-out battle to avoid slipping into a depression. The risk of a second Great Depression was palpable, the huge cost of insurance arguably worth it. Today, the panic has abated, and a more sober cost-benefit analysis is required.
Importantly, governments that emphasise long-term fiscal sustainability are likely to have an easier time inducing their central banks to maintain highly supportive monetary conditions.
If a double-dip recession does threaten, then monetary policy, including aggressive measures to combat deflation, remains by far the most reliable first line of defence.
“Everyone wants to think they’re smarter than the poor souls in developing countries, and smarter than their predecessors,” says Carmen M. Reinhart
Ms. Reinhart and her collaborator from Harvard, Kenneth S. Rogoff, have spent years investigating wreckage scattered across documents from nearly a millennium of economic crises and collapses.
New York Times July 2, 2010
THE advertisement warns of speculative financial bubbles. It mocks a group of gullible Frenchmen seduced into a silly, 18th-century investment scheme, noting that the modern shareholder, armed with superior information, can avoid the pitfalls of the past. “How different the position of the investor today!” the ad enthuses.
It ran in The Saturday Evening Post on Sept. 14, 1929. A month later, the stock market crashed.
The cruel irony of the euro area’s predicament is that, in many ways,
the whole exercise was designed to produce the very credit explosion that bedevils it today
Kenneth Rogoff, FT May 5 2010
Lower interest rates, in turn, helped fuel greater borrowing, especially in the countries of the eurozone periphery. Thus, the spreading debt crisis is as much a product of the “success” of the euro as of its failure. The euro was designed to be a superior debt financing machine and, to a considerable extent, it has delivered. Unfortunately, it should have come with a warning sign: Europe’s leaders were far too quick to admit members who might have been better served with a much longer probation period. The Maastricht treaty and, more importantly its implementation, was simply too forgiving, especially for countries with chequered financial histories.
Economists have only a limited understanding of why sovereign nations ever repay their external debt, given the lack of any supranational legal authority that might force them to do so.
It is going to be extremely difficult for some of the peripheral eurozone economies to escape without large-scale defaults on their massive private external debts, public external debts, or both.
The writer is professor of economics at Harvard and co-author with Carmen Reinhart of ‘This Time is Different’
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The IMF should impose default on Greece to end the charadeI just had lunch with Carmen Reinhart, author of `This Time is Different: Eight Centuries of Financial Folly” and a world authority on sovereign defaults.
Ambrose Evans-Pritchard Economics April 2nd, 2010
Rogoff varnar för fler bankkonkurser
"USA har inte klarat krisen.
Jag tror att finanskrisen kanske har nått halvvägs."
DI 2008-08-19
"USA har inte klarat krisen. Jag tror att finanskrisen kanske har nått halvvägs. Jag skulle till och med gå ännu längre och säga att det värsta återstår, sade Harvardprofessorn Kenneth Rogoff vid en konferens.
The global financial crisis is set to get worse, with a large US bank likely to collapse in the next few months, a former IMF chief economist has warned.
BBC 19/8 2008
Kenneth Rogoff's comments came as shares in Fannie Mae and Freddie Mac sank on a report that the home lenders would, in effect, be nationalised.
The world cannot grow its way out of this slowdown
The main macroeconomic challenges facing the world today are an excess demand for commodities and an excess supply of financial services
Need to introduce more banking discipline
Kenneth Rogoff, Financial Times July 29 2008
The writer is professor of economics at Harvard University and
former chief economist at the International Monetary Fund
In the light of the experience of the 1970s, it is surprising how many leading policymakers and economic pundits believe that policy should aim to keep pushing demand up.
In the US, the growth imperative has rationalised aggressive tax rebates, steep interest rate cuts and an ever-widening bail-out net for financial institutions.
If all regions try expanding demand, even the short-term benefit will be minimal. Commodity constraints will limit the real output response globally, and most of the excess demand will spill over into higher inflation.
For a myriad reasons, both technical and political, financial market regulation is never going to be stringent enough in booms. That is why it is important to be tougher in busts, so that investors and company executives have cause to pay serious attention to risks.
If poorly run financial institutions are not allowed to close their doors during recessions, when exactly are they going to be allowed to fail?
Of course, today’s mess was many years in the making and there is no easy, painless exit strategy.
But the need to introduce more banking discipline is yet another reason why the policymakers must refrain from excessively expansionary macroeconomic policy at this juncture and accept the slowdown that must inevitably come at the end of such an incredible boom.
This Time is Different: A Panoramic View of Eight Centuries of Financial Crises, NBER Working Paper 13882, March 2008
Same as it ever was
Is the 2007 US Sub-Prime Financial Crisis so Different?
Kenneth Rogoff, a professor at Harvard University, his paper sets out some parallels between America's subprime mess and 18 previous banking crises in the rich world.
The Economist Jan 2008
At the AEA conference, it fell to Alan Taylor of the University of California to make the case that things might not turn out quite as badly
If all of America's subprime borrowers defaulted and
only half of the $1.3 trillion lent to them was recovered,
the losses of $650 billion would amount to around 5% of GDP
Comment by Rolf Englund:
Is not 650 bn dollar rather much, especially comparet with the capital of the banks, not compared with GDP?
See also: A mere 5.4% decline in the value of Citigroup's assets would make Citigroup insolvent.
The U.S. housing stock is worth about $23 trillion, so a 15 percent drop in house prices represents a wealth erasure of $3.45 trillion
John Makin
Is the 2007 US Sub-Prime Financial Crisis so Different?
- Different from the Debt Crisis of the 80's?
Martin Wolf, FT January 8 2008
That there was a link between the savings glut and the financial fragility was evident. The former, I argued, generated the global imbalances and the monetary policy that drove household borrowing to the level required to absorb the capital inflow. Soaring house prices and rising household indebtedness were the vehicles through which policy worked.
As Carmen Reinhart of the University of Maryland and Kenneth Rogoff of Harvard note in a brilliant new paper*, this had similarities to the recycling of petrodollars to developing countries that preceded the debt crisis of the 1980s.
*Is the 2007 US Sub-Prime Financial Crisis so Different? An International Historical Comparison?
http://www.economics.harvard.edu/faculty/rogoff/files/Is_The_US_Subprime_Crisis_So_Different.pdf
This time, surplus savings were, in their words, “recycled to a developing country that exists within the US”: the subprime borrowers. The consequences for banks also look disturbingly similar.
The question that matters is whether the US will experience a lengthy period of weak growth in private demand. The chances that it will are high. This is the conclusion I draw from the paper by Professors Reinhart and Rogoff.
