Professor Carmen Reinhart, Harvard, an expert on macroeconomics and international finance found popular fame with her book co-authored by Kenneth Rogoff, This Times It’s Different: Eight Centuries of Financial Folly, which examined the striking similarities of booms and busts through history. She helps us understand financial crisis, drawing on her studies of so many of them.
She wrote a piece for Project Syndicate three weeks ago entitled “This Time Truly is Different”. I summarise the main points below.
“The vast uncertainty surrounding the possible spread of COVID-19 and the duration of the near-economic standstill required to combat it make forecasting little different from guessing.”
One of the key features that makes this economic event truly different is the response of governments: complete lockdowns.
But the scale and scope of the shock has been so great that it has led to simultaneous cratering of aggregate demand (people don’t want to spend) and supply (factories and restaurants are closed) leading to “the initial effects on the real economy likely to surpass those of the 2007-09 global financial crisis (GFC).”
Reinhart notes that corporate balance sheet are far from healthy with too much debt and increased default risks.
There are also negative effects from “the Saudi-Rus
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