In an earlier post this blog discussed This Time Is Different by Carmen M. Reinhart of the University of Maryland and Kenneth S. Rogoff of Harvard University, who gleaned a number of general lessons from eight centuries of financial crises.
This blog has also discussed several pundits, including Bill Gross and Bill Mauldin, who both extrapolated from Reinhart and Rogoff's work to form their own conclusions about the course the present financial crisis.
Now, Rogoff has spoken out and said that ballooning public debt is likely to force several countries to default and the U.S. to slash spending.
Speaking at a forum in Tokyo Rogoff said that after a major financial crisis the world usually sees "a bunch of sovereign defaults, say in a few years. I predict we will again." Without predicting who would default, he did say that European countries such as Greece and Portugal will “have a lot of troubles.” He also said that Japanese fiscal policy is “out of control.”
Another of the outcomes predicted by Rogoff is higher interest rates.
In his view, the rich, developed nations will be able to cope with the crisis without defaulting, but will pay a price. Although it is hard to call the timing, “In rich countries -- Germany, the United States and maybe Japan -- we are going to see slow growth. They will tighten their belts when the problem hits with interest rates. They will deal with it.”
In addition to co-authoring This Time Is Different, Rogoff is a former chief economist at the International Monetary Fund and a member of the Group of Thirty, a panel of central bankers, finance officials and academics headed by former Federal Reserve chairman Paul Volcker. With a complex system such as global finance, it seems prudent to include historical precenents when contemplating how the debt crisis may play itself out.
