Understanding the global turmoil: It’s the general equilibrium, stupid
Ricardo Caballero 21 May 2010
Are policymakers on track to prevent a repeat global crisis? This column says the answer is probably “no”. It argues that the current financial reform efforts are mostly aimed at the symptoms rather than the underlying illness. The fundamental problem in the current global macroeconomic and financial equilibrium is one of a shortage of safe assets.
Here we go again. Financial volatility is re-emerging, this time from the other side of the ocean. But in the current globalised environment the ocean isn’t wide enough to contain the contagion and fear.
- Will this rollercoaster ride end any time soon?
- Do policymakers (and Congress in particular) have the right diagnosis so we can hope that a cure is around the corner?
I fear the answer to both is no.
securitisation, global crisis, safe assets