For the G-20 initiative, I indeed hope it is the G-20 and not just the G-19. <> Download the accompanying reference guide. <>/FirstChar 32>> PREFACE. The professors, whose 2009 book showed that financial crises often follow similar patterns, spoke to us about what's happening in 2020. Of course the authors' point is the reverse of the book's title: this time is never different. Access a free summary of This Time Is Different, by Carmen M. Reinhart and Kenneth S. Rogoff and 20,000 other business, leadership and nonfiction books on getAbstract. BLOOMBERG MARKETS: How are you faring during the lockdown? The market is banking on this V-shaped recovery. 11 0 obj And often bank disintermediation means that you end up with the less regulated, less desirable financial institutions. So we use a much more modest version of recovery. The largest official creditor by far is China. Ecuador already is in default status, as well as Argentina. We came to Florida, where we’ve had a house for a decade. The recovery is unlikely to be V-shaped, and we’re unlikely to return to the pre-pandemic world. You can’t imagine trying to get these same subsidies passed through the Senate and the House in real time. The number of Americans filing for unemployment benefits surged last week to a 2.5-year high. . The true fall in GDP, economic historians will debate for years. And if the U.S. government is not in, if China’s not in, it’s not really enough. Carmen M. Reinhart is a professor of international finance at the Harvard Kennedy School and the author, with Kenneth S. Rogoff, of This Time Is Different: Eight Centuries of Financial Folly. China came into this with inflation running over 5% because of the huge spike in pork prices. We really can’t look independently at central banks without also looking at the balance sheet, not just of the government, but the balance sheet of the private sector, which has a lot of contingent liabilities. Everything seemed to be part of a predictable pattern. %PDF-1.3 The Covid-19 pandemic has catapulted the world into its deepest recession since the Great Depression, provoking an unprecedented fiscal and monetary response. endobj A lot of people don’t properly understand that governments own the central banks. Let me just point out another issue in terms of the policy response. The Fed has established a lot of facilities that are now providing support not only to corporates, but to the fallen angels, the riskier corporates that certainly were not envisioned at the outset of the pandemic. Vincent’s brother lives in this area. Carmen M. Reinhart, University of Maryland and NBER. But certainly the aggressive crisis response reflects lessons learned in 2008. KENNETH ROGOFF: I’m with my wife and 21-year-old daughter in our house in Cambridge, quarantining, so to speak. BM: What about the debts in the major economies, given they have been run up so aggressively? KR: We don’t know where we will come out. KR: Of course, the “Fed lower forever” is part of it. With this breakthrough study, leading economists Carmen Reinhart and Kenneth Rogoff definitively prove them wrong. But a couple of years later, the focus had moved from the banking problem to the debt problem. Obviously, this has been done to differing degrees of effectiveness in different countries, with Asia reacting much quicker and with much better near-term outcomes than Europe and the U.S. BM: How do you regard the economic policy response? To figure out what might be next, Bloomberg Markets spoke to Reinhart, a former deputy director at the IMF who’s now a professor at the Harvard Kennedy School, and Rogoff, a former IMF chief economist who’s now a professor at Harvard. And those [declines] are just staggering compared to the debt burden costs, whatever they are. That hasn’t materialized. Adds IMF warning in second paragraph. You really can’t use that experience as any template for this. So I think that if you were to ask me about an advanced economy debt issue, I think that is where it is most at the forefront. . It’s the choice that had to be taken to try to protect ourselves. �QX���J�N�&k�bI��:��NZk�⪻���nT#�7��k�mD#IY��(��&���s�WC���m����� ? KR: It’s not a free lunch, but there was no choice. They [the emerging markets] had a “good” crisis in 2008, but they’re not going to this time, regardless of how the virus hits them. I think that’s changing because of the collapse in oil price. The biggest positive productivity shock we’ve had over the last 40 years has been globalization together with technology. Also you probably need a debt moratorium that’s fairly widespread for emerging markets and developing economies. It’s very possible that the path was toward rising interest rates. <>stream One thing that’s clear is the numbers are going to look spectacularly great in some months simply because you’re coming out from a base that was pretty devastated. endstream So there is a policy option that we have and I think most countries have. . Which restaurants are going to come back? His book This Time Is Different: Eight Centuries of Financial Folly, which he co-authored with Carmen Reinhart, was released in October 2009. "Mr. Rogoff, a professor of economics at Harvard University, accurately predicted the eurozone debt crisis and for years has been telling anyone who would listen that China posed the next big threat to the global economy. CR: Chinese growth has always been very outward-looking, very propelled by export-led growth. . It’s probably much larger than the measured fall. This Time Is Different: Eight Centuries of Financial Folly reminded readers that the catastrophic 2008-09 credit crisis was far from unique. The monetary response has been done hand in hand with the Treasury. KR: It’s fiscal policy that they’re doing in this emergency situation. hޔXێ�}�W�Q�Z�. Kennedy is executive editor for Bloomberg Economics in London. I would say, looking at it now, five years would seem like a good outcome”. If the euro zone doesn’t find a way to deal with this, maybe eurobonds might be in the picture to try to indirectly provide support. BM: So what does the economic recovery look like? And we may be at that same juncture in another couple of years where you’re looking at just staggering austerity in Spain and Italy on top of a period of staggering hardship. We’ve not mentioned Italy, and that brings us to the euro zone. %@:�\��$�5]G����xJP����+���}8�@Z V��eFty�Yd�g��`� ���m�H�`B����Ue��sZ���teM)�3� ��W}��Q������������{��E�P9�L���z�ڪb�g�����3~M�ƭ 9��: ��F[�F�����u��lM&���hSC��>tz� If you look at some of the legacies of the big crises, those have all seen fixed investment ratchet down and often stay down. This Time is Different: A Panoramic View of Eight Centuries of Financial Crises*. Princeton University Press . But just as the hospitals can’t handle all the Covid-19 patients showing up in the same week, neither can our bankruptcy system and neither can the international financial institutions. KR: There will be a pretty sustained growth slowdown in China. 14 0 obj Major default episodes are typically spaced some years (or decades) apart, creating an illusion that "this time is different" among policymakers and investors. This book provides a quantitative history of financial crises in their various guises. KR: The IMF at this point is all-in on trying to find a debt moratorium, recognizing there’s going to be restructuring in a lot of places. BM: And what scars are left on economies once the pandemic passes? So certainly we would strongly endorse doing what governments are doing. It’s been a very intense period partly because I was teaching a lot. An earlier version of this story gave an incorrect year in the fourth answer from Kenneth Rogoff. <> Our son lives in this area. And my own view is that neither of those are likely to be true. The rest of the world is going to be in recession. Turkey is in terrible shape. That doesn’t imply that per capita incomes are going to go back in V-shape to what they were before. And I think that’s very wrong. BM: What about China, which also has leverage challenges? But it’s far easier to go the route of the G-20. %���� I’m just going to grade how you’re hiring extra workers at home.” Obviously how you’re doing on the battlefield is driving everything. So the abruptness and the widespread shutdowns we had not seen before. CR: Yes. That, by the way, is really not the Wall Street definition of recovery, where recovery is going back to where the trend was. That’s one difference. This Time Is Different exposes centuries of financial missteps. Each time, the experts have chimed, "this time is different"—claiming that the old rules of valuation no longer apply and that the new situation bears little similarity to past disasters. If China is not fully on board on granting debt relief, then the initiative is going to offer little or no relief. The market sees essentially zero chance of ever having inflation again. 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