The International Monetary Fund held a research conference this week in Washington focused on financial crises past and present. Some of the talk was about financial crises of the future.
The culminating panel featured an illustrious set of economists, including Federal Reserve Chairman Ben Bernanke, who were asked to reflect on the most recent crisis and what lessons have been learned from it. Stanley Fischer, who recently stepped down as governor of the Bank of Israel and who was honored at the conference, said it’s important to keep in mind what matters most: It’s hard to be sure all the post-crisis reforms will better protect against a crisis next time around until they are tested by reality.
For his part, Lawrence Summers doesn’t think the test is coming very soon.
Some combination of complacency and euphoria has preceded all the major financial crises of the past, including the one that struck in 2008, he observed.
“It feels to me like we’re a way away from complacency and euphoria,” said Mr. Summers, who served as Treasury secretary in the Clinton administration and was under consideration to replace Mr. Bernanke until he withdrew his name under amid doubts he could win confirmation.
“In the global economy are there more problems of under-confidence or overconfidence?” he asked. “I think that’s easy… I can point to some problems of over confidence but it seems to me that there are many more problems of under-confidence than there are of overconfidence,” Mr. Summers said. “So I think it’s going to be awhile, quite awhile before we have another financial crisis that will fit” the pattern of the 2008 crisis, and others such as Japan in the late 1980s or the Great Depression. “I think those type of crises are a long time off.”
But before you start feeling too good about that, Mr. Summers suggested a new crisis may be far off because we haven’t escaped the last one yet.
“Unless you think the fact that the global economy is producing $2-3 trillion less output than might be regarded as its capacity every single year, and that there are more kids living at home because they can’t get jobs after they graduate from school in the industrialized world than there have been in decades, you can regard that as a kind of continuing crisis that’s with us today,” he said. “That seems to me to be the crisis that ought to be the preoccupation.”
Mr. Bernanke, in answering a later question, suggested that is exactly what the Fed is preoccupied with now.
There is “an awful lot slack in the labor market and a lot of young people living with their parents and the like. That’s very important … and why the Federal Reserve in particular is taking strong actions to try to support job creation,” he said.
(source: The Wall Street Journal)