Skip to main content
a009d10346f86f380ea0751a_pa3026c.jpg

From Financial Crisis to Debt Crisis?

How can policymakers be so certain that financial catastrophe won’t soon recur when they seemed to have no idea that a crisis would erupt in the first place? The answer is not very reassuring, because there is still a risk that the financial crisis is simply hibernating as it slowly morphs into a government debt crisis.

CAMBRIDGE – Everyone from the Queen of England to laid-off Detroit autoworkers wants to know why more experts did not see the financial crisis coming. It is an awkward question. How can policymakers be so certain that financial catastrophe won’t soon recur when they seemed to have no idea that such a crisis would happen in the first place?

The answer is not very reassuring. First, the fact is that economics tells us much more about a country’s vulnerability to financial crises than it does about the timing.  Second, there is every reason to worry that the banking crisis has simply morphed into a long-term government debt crisis.

After all, why exactly are most investors now so confident that it is over? Mainly because they see that the governments of the world have cast a vast and expansive safety net over the major financial institutions and markets. At the same time, policymakers have turned on all the tools of modern macroeconomic stimulus to full blast, with huge fiscal deficits and near zero policy interest rates. 

We hope you're enjoying Project Syndicate.

To continue reading, subscribe now.

Subscribe

Get unlimited access to PS premium content, including in-depth commentaries, book reviews, exclusive interviews, On Point, the Big Picture, the PS Archive, and our annual year-ahead magazine.

https://prosyn.org/SG5oEc8;
  1. haass103_GettyImages_redeastasiamapdotslines Getty Images

    Asia’s Scary Movie

    Richard N. Haass

    A snapshot of Asia would show a region at peace, with stable societies, growing economies, and robust alliances. But, if we view history as a moving picture, we may well come to look back on this moment as the time in which the most economically successful part of the world began to come apart.

  2. roubini130_GettyImages_iphonehandstealingpiggybank Getty Images

    The Great Crypto Heist

    Nouriel Roubini

    Cryptocurrencies have given rise to an entire new criminal industry, comprising unregulated offshore exchanges, paid propagandists, and an army of scammers looking to fleece retail investors. Yet, despite the overwhelming evidence of rampant fraud and abuse, financial regulators and law-enforcement agencies remain asleep at the wheel.

Cookies and Privacy

We use cookies to improve your experience on our website. To find out more, read our updated cookie policy and privacy policy.