September 24, 2020

Reinhart: "The recurrent nature of financial crises is worrisome" | Economy

Reinhart: "The recurrent nature of financial crises is worrisome" | Economy



Carmen Reinhart (Havana, 1956), is considered one of the most prestigious economists by his studies on financial crises. This Tuesday she has collected the Rey Juan Carlos Economy Award (she is the first woman to receive it), endowed with 72,000 euros.

In his speech he conveyed the idea that the next crisis is near, which left a good part of the select audience. In addition to King Felipe VI, who presented the award at the Banco de España, the governor, Pablo Hernández de Cos, the former governor, Jaime Caruana, the Minister of Economy, Nadia Calviño, the CNMV president, Sebastián Albella, were present. and the most important actors in the financial world.

The co-author, together with Kenneth Rogoff, of the book "This time is different: eight centuries of financial nonsense", recalled that the crises in Greece and Italy "have not ended" and that they will not return to their GDP levels before the crisis until after 2023, according to the forecasts of the IMF, "that tend to err on the optimistic side".

In addition, he indicated that, according to his perception during the past year, the symptoms of a new wave of turbulence "have manifested in many emerging economies and developing countries", a group of countries "that now represent two thirds of the world GDP" . That is why he asked that the consequences that could be suffered, "should not be underestimated". He also recalled "the recurring nature of financial crises is particularly worrisome. Our collective memory tends to be short. That is why it is necessary to repeat the reminders. " And about the sovereign bond crisis, which has studied them in depth, he said: "I'm sure there's more to come."

Cos: "The debt is at its highest"

The governor of the Bank of Spain, Pablo Hernández de Cos, indicated that the determining factor of financial crises is usually the excessive accumulation of debt collected in good times and warned that, on a global scale, this level of debt returns, precisely, "to be at historic highs".

Reinhart, who has received the award for his investigative and informative work in the field of macroeconomics and international finance, has dedicated much of his study as a professor of International Financial System in a school linked to Harvard University.

"The fundamental message of this exhaustive work is that the financial crises continue a rhythm of expansion and contraction with a recurrent pattern in which the determining factor is the excessive accumulation of debt in good times", summed up the governor of the Bank of
Spain.

Hernández de Cos explained that "this is a common pattern" for different types of crises, regardless of whether they are sovereign, banking or foreign debt, simply because excessive debt "increases the vulnerability of economies to a crisis of confidence" "

To be able to face it and avoid the temptation to think that there is no need to reproduce another crisis or that the situation is controlled "because we have learned from the mistakes of the past and we are better prepared", he advised to make the best and most accurate collection possible
of information.

"Among the recommendations offered by the work," he said in reference to the work of the award-winning economist, "I would like to highlight the need for detailed, complete and exhaustive information on indebtedness, both from the public and private sectors, and the monitoring of the price of housing to predict potential scenarios of banking crisis ".

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