US President-elect Joe Biden may have promised a “return to normalcy,” but the truth is that there is no going back. The world is changing in fundamental ways, and the actions the world takes in the next few years will be critical to lay the groundwork for a sustainable, secure, and prosperous future.
For more than 25 years, Project Syndicate has been guided by a simple credo: All people deserve access to a broad range of views by the world’s foremost leaders and thinkers on the issues, events, and forces shaping their lives. At a time of unprecedented uncertainty, that mission is more important than ever – and we remain committed to fulfilling it.
But there is no doubt that we, like so many other media organizations nowadays, are under growing strain. If you are in a position to support us, please subscribe now.
As a subscriber, you will enjoy unlimited access to our On Point suite of long reads and book reviews, Say More contributor interviews, The Year Ahead magazine, the full PS archive, and much more. You will also directly support our mission of delivering the highest-quality commentary on the world's most pressing issues to as wide an audience as possible.
By helping us to build a truly open world of ideas, every PS subscriber makes a real difference. Thank you.
WASHINGTON, DC – The term “financial crisis” has long been associated with dramas such as bank runs and asset-price crashes. Charles Kindleberger’s classic books The World in Depression, 1929-1939 and Manias, Panics and Crashes, and my own work with Kenneth Rogoff, This Time Is Different, document scores of these episodes. In recent years, the term “Lehman moment” has stood out as a marker of the 2007-09 global financial crisis and even inspired a Broadway show.
But some financial crises do not involve the drama of Lehman moments. Asset quality can deteriorate significantly as economic downturns persist, especially when firms and households are highly leveraged. Moreover, years of bank lending to unproductive private firms or state-owned enterprises (the latter is not uncommon in some developing countries) take a cumulative toll on balance sheets.
Although these crises may not always include panics and runs, they still impose multiple costs. Bank restructuring and recapitalization to restore solvency can be expensive for governments and taxpayers, and new lending can remain depressed, slowing economic activity. The credit crunch also has distributional effects, because it hits small and medium-size businesses and lower-income households more acutely.
We hope you're enjoying Project Syndicate.
To continue reading, subscribe now.
Subscribe
orRegister for FREE to access two premium articles per month.
Register
Already have an account? Log in