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By Kenneth Rogoff
Published: April 7 2010 14:50 | Last updated: April 7 2010 18:48
As the global economy reflates, many people are asking: "Is the next bubble in gold? Is it in Chinese real estate? Emerging market stocks? Or something else?" A short answer is "no, yes, no, government debt".
In my work on the history of financial crises with Carmen Reinhart , we find that debt-fuelled real estate price explosions are a frequent precursor to financial crises. A prolonged explosion of government debt is, in turn, an exceedingly common characteristic of the aftermath of crises. As for the probable non-bubbles, most emerging markets face better prospects in the decade ahead than does the developed world, and their central banks will probably want to continue diversifying their reserve holdings. Of course, huge volatility and corrections along the way are normal.
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