Thursday, January 28, 2010

This Time It's Still Not Different Enough to Really Be Different

Please read Drs. Reinhard and Rogoff's op-ed today from the Financial Times titled:
Why we should expect low growth amid debt.

Here are the intro and the conclusion:

As government debt levels explode in the aftermath of the financial crisis, there is  growing uncertainty about how quickly to exit from today’s extraordinary fiscal stimulus. Our research on the long history of financial crises suggests that choices are not easy, no matter how much one wants to believe the present illusion of normalcy in markets. Unless this time is different – which so far has not been the case – yesterday’s financial crisis could easily morph into tomorrow’s government debt crisis. . .

Markets are already adjusting to the financial regulation that must follow in the wake of unprecedented taxpayer largesse. Soon they will also wake up to the fiscal tsunami that is following. Governments who have convinced themselves that they have done things so much better than their predecessors had better wake up first. This time is not different.

Ms Reinhart is professor of economics, University of Maryland, and Mr Rogoff is professor of economics, Harvard University. They are co-authors of ‘This Time is Different: Eight Centuries of Financial Folly’ (Princeton)

There is a reason why one-month T-bills are trading around 0.00% interest. Much smart, conservative money doesn't trust much else.

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