7894bdb0_brary_of_Economics_and_Liberty__ast_Highlights_HIDE_HIGHLIGHTS
[Time] 54:36
Marketplace is suggesting that there's not going to be a lot of inflation in the near term. What is the pattern of inflation after these banking crises? No clearcut aggregate pattern for the whole period. Divide it up: on the whole, banking crises had more inflationary consequences after WWII than before WWII. No association prior to WWII. After WWII, it's really predominantly accounted for by Latin America. Outside Latin America, not a strong link in the three to five years after a banking crises. After five years many things going on. Inflation not something imminent, but more on a 5-10 year horizon where you've been carrying a lot of debt for a long time. In inflation analysis, book extended it to five years. Pretty optimistic: speaks to the next three years; we have been two years into the crisis. Difficult and tenuous to link it back to the crisis. In America, the Fed has injected a lot of money into the economy as a response to the crisis. The inflation question becomes more pressing in a 5-10 year time horizon--not 5 years from now but from when the crisis started, which was two years ago. If we had a history of defaults, that horizon would be compressed. For other cases, you have more time. A lot of the world in this crisis turned to U.S. Treasury Notes, which would not be the case for emerging markets. VoxEU article, on too big to fail: Do you see a lot of people running into a burning building? Height of the crisis in 2008. Are the dollars' days numbered as a reserve currency? During the height of the crisis the alternatives to dollar assets were not there. You need a model to beat a model; need another currency to beat this one. Tallest pygmy theory. It wasn't irrational, but it was lack of alternatives. Debt issuance, issue by issue going back to the early 1800s in study. As early as the 1890s after Bering's crisis, you start to see emerging markets issue more debt denominated in dollars rather than British pounds; also see more linkage to the dollar than the U.K. pound. The pound had begun to have competition. After WWI, then NY was in, big time. By 1967 end of sterling zone, de facto it had already happened. That's a long period of time over which the dollar had emerged as an alternative. Central banks don't buy euros per se--they buy assets. In the euro market, still have German bonds, Greek bonds, Spanish bonds--and they are very different. Don't have the equivalent of the U.S. Treasury market. And China has a nonconvertible currency. People running into dollar assets in 2008 at the height of the crisis and the dollar even appreciating--very unusual--has to do with the dollar still retaining its role as reserve currency. If we continue to make policy mistakes that will change.
Reinhart on Financial Crises | EconTalk | Library of Economics and Liberty