The Geopolitical Consequences of the Financial Crisis
PRINCETON – Worried investors and policymakers are becoming obsessed with Great Depression analogies. But the lesson of 1931 is only in part financial or economic. The 1931 crisis was so big and so destructive because it was a financial drama that played out on a geo-political stage.
Two surprising conclusions are emerging in today’s discussions, but only one has been fully digested. First, big public sector action is needed. Second, such action is complicated because in a globalized world the need for assistance spans borders.
First, private sector solutions have been tried but have failed in a breathtakingly short space of time. The most frequent consolation in this failure is that a really bad crisis is purgative. Insolvent businesses close, bad loans are written off, and lenders can lend with new confidence again.