The Post-Crisis Economy’s Long Debt Hangover | E-Axes
 

Search
Login
Username:
Password:
Not a member yet? Click here.
Forgot your Password?
Archives - Categories
Home
On Inequality
On the Eurozone Debt Crisis
On Monetary Policy and Central Banking
On Global Economic Growth
On the Greek Debt Crisis
On the Banking and Financial Sectors
On Brexit
On China
On India
On Global Inflation
On Currencies
On the US Debt
On the "Economics" of the Arab Spring
Blogs
Working Papers
Books
Books suggested by members



The Post-Crisis Economy’s Long Debt Hangover

Author(s): Carmen Reinhart
With the largest economies, nearly eight years after the global financial crisis, burdened by high and rising levels of public and private debts, it is baffling that comprehensive restructuring does not figure prominently among policymakers' options. Indeed, at last week's G-20 meeting, debt was the proverbial elephant in the room.

From Project Syndicate:

The meeting of G-20 finance ministers and central bank governors in Washington, DC last week concluded on a sour note. Small wonder: Global growth prospects have dimmed amid a variety of risks now emanating from both advanced and developing countries.

The meeting’s participants addressed – yet again – the need for greater policy coordination, more fiscal stimulus, and a variety of structural reforms. And that discussion has become more urgent, given the widespread view that monetary policy may not have much ammunition left, and that competitive devaluations would do more harm than good.

But with the largest economies, nearly eight years after the global financial crisis, burdened by high and rising levels of public and private debts, it is baffling that comprehensive restructuring does not figure prominently among the menu of policy options. Indeed, for the global economy, debt restructuring is the proverbial elephant in the room.

In the early stages of the financial crisis of 2008-2009, Kenneth Rogoff and I noted that recovery from severe financial crises are protracted affairs, as it takes time for households and firms to work down the debts accumulated during the boom. At the same time, banks, faced with a surge in nonperforming loans and compromised balance sheets, may be unable or hesitant to engage in new lending. Delays in cleaning up balance sheets are among the factors that impede recovery and make post-crisis recoveries different from typically sharper business-cycle rebounds.

In a follow-up study, we documented the trajectory of per capita income following the 100 worst financial crises since the 1860s. We found that it took a little more than seven years, on average, for the advanced economies (as they are defined today) to reach the pre-crisis level of income; the median recovery took about six years. The decline in per capita income from its peak at the onset of the crisis to its trough at the recession’s bottom averaged about 9.6% for this group. Crisis-related output collapses for emerging markets were worse.

How does the modern post-crisis experience compare to its historical counterparts? The International Monetary Fund’s latest World Economic Outlookwhich offers projections for per capita GDP growth (among numerous other indicators) through 2021 for most of the world’s economies, facilitates the appraisal.

Read more...


© 2011–2017 e-axes. All rights reserved. | Credits | Contact Us | Privacy Statement | Sun 21 Jan, 2018 14:26:45 PM
e-axes is proudly powered by Norder - Creative Solutions