Crises Past and Future Occupy Bernanke, Reinhart at Nobel's Home

Greatest economic minds talk about crises -- both past and future.

Crises Past and Future Occupy Bernanke, Reinhart at Nobel's Home
Pedestrians walk along Wall Street near the New York Stock Exchange (NYSE) in New York, U.S. (Photographer: Michael Nagle/Bloomberg)  

(Bloomberg) -- The talk was all about crises -- both past and future -- as some of the world’s leading economists gathered at a conference over the weekend.

While former Federal Reserve chair Ben S. Bernanke and University of California at Berkeley Professor Barry Eichengreen used presentations at a Nobel Symposium in Stockholm to address the implications and effects of past financial turbulence, others cast a wary eye on the next episode.

Carmen Reinhart and Kenneth Rogoff of Harvard University both cautioned against complacency, with the former warning that economists and officials may last year have gone “a little too overboard” in their belief in a synchronized global upswing. Former Reserve Bank of India Governor Raghuram Rajan called for tighter oversight over shadow banking, financial technology and emerging markets. There’s a tendency to under-regulate before a crisis and then overdo it in the aftermath, he said.

The warnings come as policy makers insists that a global low-inflation economic expansion is still intact despite some weakness to start 2018. At a separate conference in the Swedish capital late last week Fed Chair Jerome Powell and Bank of England governor Mark Carney both said that, with monetary policy yet to be normalized, further unconventional stimulus might be necessary when officials are next forced into action.

For Harvard’s Reinhart, who this month warned that emerging markets are in worse shape now than in 2008, high levels of public indebtedness -- a hangover over from the financial crisis -- could sow the seeds of the next. Greece’s debt crisis, as well as those in Portugal and Iceland as “a very good flavor of what a debt crisis looks like,” she said.

“I don’t think that’s over,” Reinhart said in an interview Sunday. “The next set of problems, the next set of crises I think have a much bigger fiscal core than the financial core of the 2008-2009.”

‘It’s Political’

Rogoff, who co-authored “This Time Is Different: Eight Centuries of Financial Folly” with Reinhart, flagged political turmoil as a risk.

“When we are talking about debt or fiscal policy, it’s political,” he said in a presentation. When economists write a model, they may have to say “you didn’t tell me you would have Beppe Grillo become leader. You didn’t tell me Donald Trump would be leader. You didn’t tell me Jeremy Corbyn might win in England. You know, that wasn’t in my model, but it’s in the world.”

“I think it’s important to resist this time it’s different, end of history thinking,” Rogoff said, while also citing cyber warfare as potential source for future disruption.

See what Bloomberg economists say on emerging market risk:
GLOBAL WEEK AHEAD: What Krugman, Reinhart May Miss on EM Risk

Rajan, now at the University of Chicago Booth School of Business, said the seeds of the next crisis may be hidden in emerging new technology.

What’s Missing?

“Of course you don’t want to mess with fintech until you understand it better,” he said. “But you don’t want it to grow too big before, like sub-prime, you wake up and say what have we got here? You want to understand it better before that.”

While it’s hard to pinpoint where there will be a crisis, good places to look are where there’s high leverage and high asset price growth, he said, “On fintech the issue is not so much that we know there’s a crisis, but it’s totally untested,” he said.

Kristin Forbes, a former Bank of England policy maker who’s now at the Massachusetts Institute of Technology, said the good news about the preceding decade is that economists now have a much better understanding of what triggers a crisis but that crucial work still remains on preventing the next one.

“What are we missing?,” Forbes said in an interview Sunday. “One is we have a better understanding of the crisis, so that’s good, but most papers stop there and there’s not much work on what we do about it.”

Her colleague at MIT, 2016 Nobel laureate Bengt Holmstrom, cautioned against relying on the predictive powers of economists all together.

“Economists on the whole are not good at forecasting anything because that is not really what our main business is,” he said. “Forecasting is a sexy business. Somebody is always right. But I don’t think there is any consistency to being right.”

To contact the reporters on this story: David Goodman in London at;Rafaela Lindeberg in Stockholm at

To contact the editors responsible for this story: Jonas Bergman at;Paul Gordon at

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