All of the Queen of England to the temporarily displaced workers the automotive industry, want to know why the experts had not seen approaching a financial crisis. This is a difficult question.
How politicians can be so sure that disaster does not recur again when they had also thought that such a crisis can happen at all?
The answer is not very obnadiyuye. In fact, there is great risk that the financial crisis merely dormant, slowly transformuyuchys debt crisis in government.
The reason for the growth of confidence among investors due to the fact that governments worldwide spread wide network security in most of the financial system. At the same time, they supported the economy, keeping major deficit, and central banks lowered interest rates almost to zero.
However, whether the government covered the generosity solve the problem?
Government support is for the taxpayers deep pockets, but they are not bottomless. And if governments, particularly large, are in difficult situations, the support disappears. What level of government debt reaches a peak usually seen only after the war, and this means that the current strategy is unstable.
How long in this situation can accumulate debts? We do not know. Academic economists have developed useful tools to determine what the economy most vulnerable to financial crisis. However, despite the fact that we can predict vulnerability to determine the exact time is virtually impossible.
Our models show that the economy, borrowing heavily loaded, can continue working for several years or even decades before you will collapse.
It all boils down to trust and coordination of expectations, which in turn depend on the whims of human nature. Thus, we can say that the country's most vulnerable, however, specify where and when a crisis breaks out, we can not.
A good analogy is the weather of heart attacks. Thick people with high blood pressure and high cholesterol have a great statistical probability of a serious heart attack or stroke than someone who has no such defects.
However, people who fall into high risk, can often live for decades without encountering such problems. At the same time, people belonging to a group of "low risk", also die from heart attacks.
Of course, careful monitoring may provide useful information for prevention of heart attacks. But ultimately, it is useful only if the person undergoing treatment, and possibly significantly change their lifestyles.
The same applies to financial systems. Good monitoring provides information that is useful only if a corresponding reaction. Unfortunately, we live in a world in which the political system and control system is very weak and shortsighted.
In fact, no economy is immune to financial crises, regardless of how investors and leaders try to convince myself the opposite. This is me and Carmen Reinhart wrote in the book of ironically named "this time differently: eight centuries of financial nedalekohlyadnosti.
It is shortsighted is this phrase "this time differently, as governments take all the debts on their shoulders and say, all the other not to worry.
We always say that governments do not fall into a state of default. Indeed, governments around the world announced defaults with amazing regularity - either openly or through inflation.
For example, even the U.S. has reduced its debt through inflation in 1970 and reduced the value of the dollar in gold from $ 20 per ounce to $ 34 per ounce in 1930.
Today the good news is that the crisis will be deterred by that time, while the government holds the loan. The bad news is that the speed with which the government accumulated debt can lead to a second wave of financial crisis for several years.
The greatest fear is America's huge dependence on foreign loans, especially the Chinese - an imbalance that is likely to sow the current crisis.
Asia recognize: if they continue to accumulate debt paper, the risk to repeat the experience of Europeans who suffered thirty years ago, when the accumulated debts of the United States, which subsequently roztanuly through inflation.
The question is why today no one warns you about the next crisis. We have such people, and listen to them, or political leaders?
Expansion of unstable government deficit is the key to the issue that the leaders of G-20 to put himself at the September meeting in Pittsburgh. Otherwise, Queen Elizabeth II and the automotive industry workers in Detroit will ask again, very soon, why no one saw approaching another crisis.
Author: Kenneth Rogoff
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