02/07/2010
http://assets.fundacionfaes.org/prensa/CAMPUS2010/ROGOFF_W1.jpg! "We have an accumulation of debt which, unavoidably, slows down growth" He assured that "this housing crisis has not finished yet, although the worst part has already passed" He points to globalisation, technology and innovation as some of the key factors to overcome the crisis Navacerrada (Madrid), 02.07.10.- Former IMF Chief Economist and Harvard Professor, Kenneth Rogoff, has analysed "The Aftermath of the Financial Crisis" today, Friday July 2, at the Economics course of the 2010 FAES Campus. During his address, Rogoff has stressed the possible consequences that a new regulation of the financial system could bring: "banks won"t be able to face [the situation] if the Governments start to regulate the financial system". On the one hand "banks are told that they cannot face risks, that they have to unleverage themselves" but "if they were to do this, they would stop lending for a very long time", he stated. To illustrate his conclusion, Rogoff has compared this to a patient recovering from a heart attack "to whom we suggest going jogging, how can he do this?" he asked himself. During today"s address in the Economics course "Stability and Reforms before the Fiscal Crisis" of the Campus, Harvard University Professor acknowledged that in the context of the current crisis "Governments are facing a very complicated situation". "Everybody turns to the Government when there"s a crisis" he explained and, as a consequence, "Governments take on too much debt and they cannot afford all that debt". "After a financial crisis, public debt soars" Rogoff stated, and also said that with this outlook in sight "if you owe money and are in a vulnerable situation, volatility is not a good thing". In this sense, former IMF Chief Economist stressed that "we have an accumulation of debt which, unavoidably, slows down growth". HOUSING CRISIS In his diagnosis of the financial crisis, Rogoff also referred to the housing crisis, which, in his opinion, "is at the core of the crisis". "Housing prices in the US fell by 33% and this fall will probably continue for some time". "This housing crisis has not ended yet, although the worst part has already passed" he stated. Rogoff also questioned the economic results of the United States, particularly "the fall of real income just by 4%" as the "Government only measures large companies, not SMEs" so, "once they make a real study they will see that GDP has fallen much more". KEY FACTORS TO OVERCOME THE CRISIS Former IMF Chief Economist revised history to illustrate the current situation. According to his data, obtained after a deep research, most countries have faced banking crises before, like for instance, France, which has defaulted nine times the payment of external debt since 1550, or Spain, experiencing this situation ten times. "Someone said that these defaults would never happen again, but that"s madness" he assured. In spite of everything, Rogoff trusted countries would be able to overcome the crisis. "In ten years time they will say this crisis was not that bad. The power of globalisation, technology and innovation are stronger than we think and will make us grow faster. We have experienced two centuries of spectacular growth in spite of the crises we have suffered", he concluded. Last but not least, the American economist predicted that "China is going to become the most important economy" and its currency, the Yuan, "the reference currency", in spite of which it will also be affected by the current crisis".