“Our country is facing the largest budget deficit in our modern history.” Thus did George Osborne, shadow chancellor of the exchequer in the Conservative party, start his speech at the party conference this week. He was right. The questions are what to do, how and when. Read more

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A year ago, the world economy fell into a deep recession. Now, happily, we see financial stabilisation and economic recovery. But we must not declare victory. The world could still make two mistakes: first, we might withdraw stimulus too soon; second, we might lose the opportunity for reform. We must avoid both dangers. That is the lesson I learnt at the annual meetings of the International Monetary Fund and World Bank in Istanbul. So where are we and where do we need to go? Think of this in terms of five ‘r’s: rescue; recovery; rebalancing; regulation; and reform. Read more

The four most dangerous words in finance are “this time is different”. Thanks to this masterpiece by Carmen Reinhart of the university of Maryland and Kenneth Rogoff of Harvard, no one can doubt this again.

As the authors note, “If there is one common theme to the vast range of crises we consider in this book, it is that excessive debt accumulation, whether it be by government, banks, corporations or consumers, often poses greater systemic risks than it seems [to do] during a boom”. Read more

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The FT has a new series on the future of investment. But what, I wonder, is the future of finance itself? Who is confident that the financial system now emerging from the crisis is safer, or better at servicing the public’s needs, than the one that went into it? The answer has to be: few people. The question is how to remedy this dire situation. Read more


China has had a good crisis. That became obvious at the “summer Davos” of the World Economic Forum, in Dalian, less than two weeks ago. Chinese confidence was palpable. But so was anxiety. The giant has survived the shock. But its recovery is driven by a surge in credit and fixed investment. In the longer term, China needs to rebalance its economy, by increasing consumption. It is time for the Chinese to enjoy themselves more. How unpleasant can that be? Read more

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“If the price of oil stabilises, I believe we can weather the financial crisis at limited cost in terms of real activity.” Thus did Olivier Blanchard, newly appointed head of the International Monetary Fund’s research department, describe the prospects ahead on September 2 2008. He was swiftly proved wrong. Read more

I like and admire Lord Turner, chairman of the UK’s Financial Services Authority. He is more than an acute analyst. He is also brave. He showed that in his struggle with Gordon Brown, then chancellor of the exchequer, over plans for pension reform published in 2005. He is showing that again today in the lively debate he has initiated on the future of financial regulation. Read more

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Our unprecedented, decisive and concerted policy action has helped to arrest the decline and boost global demand.” Thus did the finance ministers and central bank governors of the Group of 20 leading high-income and emerging economies pat themselves on the back over the weekend. They were right. The response to the crisis was both essential and successful. But it is still too early to declare victory. Read more

If the government of the UK wishes to find a suitable motto, it should adopt the advice of a great Scot. “Great Britain should,” wrote Adam Smith in The Wealth of Nations, “…endeavour to accommodate her future views and designs to the real mediocrity of her circumstances.” Smith offers wise counsel. The country’s circumstances are more mediocre than imagined two years ago. The question is how to respond. Read more


Is the world economy on its way out of the crisis? Has the world been learning the right lessons? The answer to both questions is: up to a point. We have done some of the right things and learnt some of the right lessons. But we have neither done enough nor learnt enough. Recovery will be slow and painful, with substantial danger of relapses. Read more

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What will the world economy – indeed, the world – look like after the financial crisis is over? Will this prove to be a mere blip or something more fundamental? Much of the answer will be provided by the performance of the two Asian giants, China and India. Rightly or wrongly, it is widely accepted that China will continue to grow very rapidly. But what is the likely future for India? Read more

Will no one rid me of this turbulent central banker? Gordon Brown, the UK’s prime minister, may be asking just that when he learns of yet another critical comment from the governor of the Bank of England. For Henry II, king of England in the 12th century, the troublemaker was Thomas Becket, his own choice as archbishop of Canterbury. For Mr Brown, it is Mervyn King, whom he has reappointed to an equally impregnable position. The parallel is clear: central bankers are cardinals in the cult of monetary stability.

Becket was murdered. Mr King will not suffer that fate. But a later king of England brought the church and his archbishops to heel. Could the Bank suffer a similar fate? Read more


With one bound the banks are free, or so it seems. Already, the panic of the autumn of 2008 is fading. The period within which lessons can be learnt and changes made is closing. Yet without radical changes, another crisis is certain. It may not even be that long delayed. Read more

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Proposals for reform of financial regulation are now everywhere. The most significant have come from the US, where President Barack Obama’s administration last week put forward a comprehensive, albeit timid, set of ideas. But will such proposals make the system less crisis-prone? My answer is, no. The reason for my pessimism is that the crisis has exacerbated the sector’s weaknesses. It is unlikely that envisaged reforms will offset this danger. Read more

Abraham Lincoln famously said that “you can fool some of the people all of the time, and all of the people some of the time, but you cannot fool all of the people all of the time”. His successor, George W. Bush, is reported to have added: “You can fool some of the people all the time, and those are the ones you want to concentrate on.” Some British politicians wish to follow that advice in the debate on the public finances. Alistair Darling’s refusal to do that was, it appears, the reason Gordon Brown, the prime minister, wanted to drop him. But Mr Darling is to be praised, not dropped, for his probity. Read more

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Green shoots are bursting out. Or so we are told. But before concluding that the recession will soon be over, we must ask what history tells us. It is one of the guides we have to our present predicament. Fortunately, we do have the data. Unfortunately, the story they tell is an unhappy one. Read more


Creditor countries are worrying about the safety of their money. That is what links two of the big economic stories of last week: Chancellor Angela Merkel’s attack on the monetary policies pursued by central banks, including her own, the European Central Bank; and the pressure on Tim Geithner, US Treasury secretary, to persuade his hosts in Beijing that their claims on his government are safe. But are they? The answer is: only if the creditor countries facilitate adjustment in the global balance of payments. Debtor countries will either export their way out of this crisis or be driven towards some sort of default. Creditors have to choose which. Read more

This financial year, the UK government is forecast to spend £4 for every £3 it raises. Never before, in peacetime, has the UK run such a deficit. This, one might imagine, would be a dominant concern in the British political debate. One would be quite wrong. The public is venting its rage over the expenses of members of parliament, instead. Read more

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Is the US (and a number of other high-income countries) on the road to fiscal Armageddon? Are recent jumps in government bond rates proof that investors are worried about fiscal prospects? My answers to these questions are: No and No. This does not mean there is no reason for worry. It is rather that there are powerful arguments against fiscal retrenchment right now and strong reasons for welcoming recent moves in the bond markets. Read more

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Why has the European Union suffered so badly in a crisis that began in the US? The answer is to be found in four weaknesses: first, Germany, the EU’s biggest economy, is heavily dependent on foreign spending; second, several western European economies are suffering from post-bubble collapses in demand; third, parts of central and eastern Europe are also being forced to cut spending; and, fourth, European banks proved vulnerable to both the US crisis and to difficulties nearer home. Given these realities, recovery is likely to be slow and painful. Read more