Financial Crises: Past and Future

This article, based on my Adam Smith Lecture at the 60th NABE Annual Meeting on September 2018, takes a selective global tour of some of the prominent economic and financial risks in advanced, emerging, and low-income developing economies. The primary emphasis is on near-term risks. The discussion covers areas where vulnerabilities have either already become manifest, or those where risks are mounting but have not yet sounded a glaring alarm. For the advanced economies, the topics cover aspects of the recent surge in collateralized lending obligations (CLOs) in the United States and Europe that are reminiscent of the pre-crisis boom in mortgage-backed securities as well as Italy’s unresolved debt overhang. On emerging markets (EMs) and developing economies, the themes cover: the curious case of the missing defaults (2011-2018); global factors and EM turbulence; and China’s international lending to low-income countries and its consequences. A brief discussion of some persistent medium-to-long-term concerns about the rising levels of US public debt and the tensions that arise from internal economic objectives and the external pressures associated with the US dollar’s role as the world’s principal reserve currency completes the discussion. The tour starts with an assessment of the 2008-2009 global financial crisis’ recovery experience.