January 24, 2014
Two Harvard professors are predicting that America will soon be forced to adopt financial measures only previously used by third-world countries in order to control its runaway debt. Economists Carmen Reinhart and Kenneth Rogoff gained international attention and applause with their 2009 book, This Time is Different: Eight Centuries of Financial Folly, followed by the publication in 2010 of Growth in a Time of Debt.
The first gained international recognition for its analysis of fiscal follies implemented by governments to rein in out-of-control debts and pointing to the similarities to the current environment in the United States. The second book gained the professors notoriety for claiming that too much debt predictably slowed economic growth, especially when government debt exceeded 90 percent of a country’s gross domestic economic output. Keynesians seeing the implications that would come from implementing austerity measures to slow the growth of that government debt discovered some mathematical errors in the book's thesis, and the media then directed all their attention to those flaws instead of focusing on the message: Too much debt slows economic growth.
This time the media have been remarkably reticent to focus on the professors’ predictions. The current study entitled “Financial and Sovereign Debt Crises: Some Lessons Learned and Those Forgotten” was initially prepared for an International Monetary Fund (IMF) conference back in September 2012 and was only made available by the IMF for public consumption this past December. When it was published, the frontispiece was laden with disclaimers: “The views expressed ... are those of the authors and do not necessarily represent those of the IMF or IMF policy.” And, “[Such] working papers describe research in progress by the authors and are published to elicit comments and to further debate.”
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