Found 505 article(s) in category 'Q4: Financial Crisis?'

HOW DO WE PREVENT THE NEXT FINANCIAL CRISIS?

The posts collected here explore the causes of the global financial crisis and its short- and long-term consequences. They include a multitude of proposals for preventing and mitigating financial crises in the future.

Public borrowing is cheap but ramping up debt is not without risk

Public borrowing is cheap but ramping up debt is not without risk. Kenneth Rogoff, December 9, 2019, Opinion, “With interest rates on government debt at multi-decade lows, a number of leading economists have argued that almost every advanced economy can allow debt to drift up towards Japanese levels (over 150% of GDP even by the most conservative measure) without any great concern about long-term consequences. Advocates of much higher debt might be right, but they tend to downplay or ignore everything that can go wrong.Link

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The Economic Context for Reforming the Safety Net

The Economic Context for Reforming the Safety Net. Karen Dynan, November 6, 2019, Paper, “As we wrestle with the future of our safety net and social insurance programs, it is important to understand not only the features and outcomes associated with individual programs but also the broader economic context. This reflection piece discusses several relevant aspects of the macroeconomy and of economic and financial conditions facing households: rising government debt, slower macroeconomic growth, limited tools to fight future recessions, greater income inequality, and the financial struggles of households. It goes on to draw lessons for how we should reform our system of entitlement programs.Link

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Undisclosed Debt Sustainability

Undisclosed Debt Sustainability. Laura Alfaro, 2019, Paper, “Over the past decade, non–Paris Club creditors, notably China, have become an important source of financing for low- and middle-income countries. In contrast with typical sovereign debt, these lending arrangements are not public, and other creditors have no information about their magnitude. We transform the traditional sovereign debt and default model to quantitatively study incomplete information arrangements and find they greatly reduce traditional/Paris Club creditors’ debt sustainability. Disclosure of nontraditional debt would imply significant welfare gains for the recipient countries but would reduce its sustainability. We discuss the implications of nontraditional lending on standard assumptions of sovereign debt models.Link

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The American Working Man Still Isn’t Working

The American Working Man Still Isn’t Working. Jason Furman, September 19, 2019, Opinion, “The United States is in the midst of its longest-ever economic recovery. It has been a slow climb out of the depths of the 2008–9 financial crisis, but the upward trend is now in its 11th year. American workers have seen 107 consecutive months of job growth, more than double the previous record, and the unemployment rate will soon reach its lowest level in over 50 years. However, there is one important economic indicator that still hasn’t rebounded to pre-crisis levels: the employment rate among prime-age men—that is, men between the ages of 25 and 54.Link

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John Campbell on the Current Investing Environment, Asset Pricing, Stock Market Lessons from India, and Solutions for Financial Crises

John Campbell on the Current Investing Environment, Asset Pricing, Stock Market Lessons from India, and Solutions for Financial Crises September 2019. GrowthPolicy’s Devjani Roy interviewed John Y. Campbell, Morton L. and Carole S. Olshan Professor of Economics at Harvard University, on the current investing environment, asset pricing, stock market lessons from India, and solutions for […]

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Launch a Pre-Emptive Strike Against Recession

Launch a Pre-Emptive Strike Against Recession. Jason Furman, September 5, 2019, Opinion, “President Trump was right to set aside premature plans for fiscal stimulus last month. Based on the current economic situation, stimulus isn’t yet warranted—but it may be soon. Given the uncertainty, Congress should pass a law immediately that would automatically trigger stimulus if the labor market deteriorates, with unemployment rising rapidly. The package should include not only tax cuts but also relief for states, as well as extra…Link

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Controlling the Long-Term Problem of Short-Term Funding

Controlling the Long-Term Problem of Short-Term Funding. Hal Scott, August 23, 2019, Paper, “While financial crises can be triggered by several causes, runs on short-term liabilities are at the heart of all financial crises, with the recent 2007–09 financial crisis being no exception. Given the unpredictability of crisis triggers and the overwhelming predictability of short-term funding’s role in financial crises, legislative and regulatory responses to the recent financial crisis should focus on the consequences of relying on short-term funding in the financial system. However, in addressing the problem of such funding, it is important to recognize the social benefits afforded by short-term liabilities and not simply the costs. To this end, this paper provides a brief overview of short-term funding in the U.S. financial system, while also highlighting the trade-off between the costs and benefits of short-term liabilities. The paper proceeds with an analysis of various proposals aimed at addressing the short-term funding issue.Link

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