Our son lives in this area. Illustrator: Marta Zafra for Bloomberg Markets. She is … The world will follow a path similar to the 2008 global financial crisis, only worse, Reinhart and her husband, Vincent Reinhart, the chief economist at Standish Mellon Asset Management, write in the forthcoming issue of Foreign Affairs magazine. It’s not just the people not working. KR: Of course, the “Fed lower forever” is part of it. If you look back to 2008-09, nearly everybody had a banking crisis. Our son lives in this area. So that affects not just trade, but movements and people. You really can’t separate the fiscal story and the debt story from the monetary story in extreme periods. Adds IMF warning in second paragraph. So we use a much more modest version of recovery. It turns out this time really is different. And you have to deal with cash hoarding. The Fed has established a lot of facilities that are now providing support not only to corporates, but to the fallen angels, the riskier corporates that certainly were not envisioned at the outset of the pandemic. Carmen Reinhart and Kenneth Rogoff at Ms. Reinhart’s Washington home. BM: What about the debts in the major economies, given they have been run up so aggressively? Some of the U.S. firms will end up rehiring their workers. What’s the efficiency of the people who are working? I think a lot of it. KR: It’s fiscal policy that they’re doing in this emergency situation. There is no chance inflation will go up. There’s a lot of uncertainty, and it’s probably not in the pro-growth direction. [18], By contrast, the 2008 near-meltdown destroyed parts of the financial system and left other parts reeling and in serious need of de-leveraging. One thing that’s clear is the numbers are going to look spectacularly great in some months simply because you’re coming out from a base that was pretty devastated. We were on track for that anyway. It’s probably much larger than the measured fall. Reinhart and her husband Vincent, a resident scholar at the American Enterprise Institute in Washington, recently compared major global meltdowns since the 1929 stock market crash. KR: There will be a pretty sustained growth slowdown in China. We came to Florida, where we’ve had a house for a decade. And then there are the socio-political ramifications. ... Reinhart Realtors 2452 E Stadium Blvd Ann Arbor, Mi 48104 734-971-6070. Nigeria, Ecuador, Colombia, Mexico—they’ve all been downgraded. I think we’re going to see a lot of work for bankruptcy lawyers going across a lot of industries. Her work is featured in the financial press, including The Economist,[12] Newsweek,[13] The Washington Post,[14] and The Wall Street Journal. So I think initially that the PBOC [People’s Bank of China] has been somewhat constrained initially in doing their usual big credit stimulus by uncertainty over their inflation. They’re actually not that different. ", "Rogoff and Reinhart defend their numbers", "Does High Public Debt Consistently Stifle Economic Growth? And let’s remember, their population dynamic is completely changing. It potentially also envelops Spain. She has served on the editorial boards of The American Economic Review, the Journal of International Economics, International Journal of Central Banking, among others. Do we see that blurring of lines with fiscal policy? If you look at U.S. unemployment claims in six weeks, we’ve had [job losses that] took 60 weeks in terms of the run-up. Michael Lewis, Carmen Reinhart and Kenneth Rogoff, James Galbraith — they, and other economists, have all provided visceral insights into what unfolded. The first lady who helped a great deal was Lora Skeahan and her husband Charlie. In terms of growth and productivity, they will be lasting negative shocks, and demand may come back. But a couple of years later, the focus had moved from the banking problem to the debt problem. It’s very possible that the path was toward rising interest rates. You’ve also had much of its double-digit growth come from incredible fixed investment. She and her husband are impeccable economists. When you have, as we do today, very fragmented markets, markets that became totally illiquid, I think the way I would deal with that would not be through making rates more negative, but by an approach closer to the one taken by the Fed, which is through a variety of facilities that provide directed credit. She received her Ph.D. from Columbia University. And often bank disintermediation means that you end up with the less regulated, less desirable financial institutions. Large amounts of governmental debt, household debt, corporate debt, and financial institution debt were left in its wake. As an analogy, the IMF or Chapter 11 bankruptcy is very good at dealing with a couple of countries or a couple of firms at a time. When Carmen Reinhart and Kenneth Rogoff published their heavyweight history of financial crises in late 2009, the title was ironic. That’s a big issue. And there are many ways this feels more like the Great Depression. I also feel the markets have a very sanguine view of the virus and what’s going to happen and how quickly we can return to normal or maybe how quickly we will choose to return to whatever normal is. And if there’s a shakeout that involves concerns about Italy’s growth, then we could have a transition again from the focus on the Covid-19 crisis this time to a debt crisis. That’s not a bad prediction for China. KR: It’s a little bit as if you were in a war and saying, “I’m not going to grade how you’re doing on the battlefield. February 2012 at 10:03. "Sovereign Debt Relief and Its Aftermath." She is also a member of American Economic Association, Latin American and Caribbean Economic Association,[6] and the Association for the Study of the Cuban Economy. But just as the hospitals can’t handle all the Covid-19 patients showing up in the same week, neither can our bankruptcy system and neither can the international financial institutions. [4], This biography of a living person is in the category. Carmen Reinhart, a professor of economics and finance at Harvard´s Kennedy School of Government, says the fallout from the COVID-19 outbreak is coupled with a global oil price war. If you look at capital flows to emerging markets, the same story. Sustained negative interest rates in Europe have led to a lot of bank disintermediation. Born in Havana, Cuba, Reinhart arrived in the United States on January 6, 1966, at the age of 10, with her mother and father and three suitcases. and Professor of Economics and Director of the Center for International Economics at the University of Maryland. Carmen Reinhart, Wikipedia ... Romer's later work, with her husband David Romer, has concentrated on the effect of tax changes on the US economy. We came to Florida, where we’ve had a house for a decade. How else do we deal with what developing and emerging economies owe? Carmen M. Reinhart is Professor of Economics and Director of the Center for International Economics at the University of Maryland. So central banks all over the world are using the fiscal side of their balance sheet. You really can’t use that experience as any template for this. So the probability is, for the foreseeable future, we’ll have deflation. Carmen M. Reinhart (née Castellanos, born October 7, 1955) is the Minos A. Zombanakis Professor of the International Financial System at Harvard Kennedy School. CR: How much of the resilience, if not ebullience, in the market is policy driven? There are a lot of geographic changes that are being necessitated because, if the economic downturn has been synchronous, the disease itself hasn’t been synchronous. Nigeria is in terrible shape. So there are going to be phenomenal frictions coming out of this wave of bankruptcies, defaults. KR: In our book, Carmen and I use the definition of recovery as going back to the same income as the beginning. BM: So what does the economic recovery look like? And I think that’s very wrong. It’s a very … She has testified before Congress and is listed among Foreign Policy's Top 100 Global Thinkers, Thompson Reuters' The World's Most Influential Scientific Minds, and Bloomberg Markets Most Influential 50 in Finance. But I’m saying that then your settling point is going to be lower than 6%. Advanced countries have done this all the time—finding some sort of debt restructuring or writedown to give them fiscal space again, to support growth again. Vincent’s brother lives in this area. It contains two chapters. BM: There is some question over the future path of inflation. We came to Florida, where we’ve had a house for a decade. On the issue of negative interest rates, I do not share Ken’s views on that particular matter. The recovery is unlikely to be V-shaped, and we’re unlikely to return to the pre-pandemic world. This is like war. “The nineteenth and early twentieth centuries were filled with depressions,” write the husband-and-wife Reinharts. And those [declines] are just staggering compared to the debt burden costs, whatever they are. Another reason I think the V-shape story is dubious is that we’re all living in economies that have a hugely important service component. Real GDP that year grew 9%. The article is written by Carmen Reinhart and Vincent Reinhart. Central banks began to do fiscal policy not just this time around, but they began to do fiscal policy in the 2008-09 crisis. I would say, looking at it now, five years would seem like a good outcome”. Kenneth Rogoff, and Carmen Reinhart. The first historical study is detailed in the book, This Time Is Different, by Carmen Reinhart and Kenneth Rogoff, who’ve extensively researched the impact of high debt on inflation and gross domestic product (GDP). But if they don’t say that, and every country’s left on its own to work something out, I think we get back to my Covid-19 hospital analogy where the system just gets overwhelmed. If you look at some of the legacies of the big crises, those have all seen fixed investment ratchet down and often stay down. They settled in Pasadena, California, during the early years before moving to South Florida, where she grew up. I go back to my Wizard of Oz analogy. In an op ed essay in Sunday’s Washington Post, Carmen Reinhart and her husband, Vincent, a former top Federal Reserve economist now at … To feed nearly 60 million people, give them food and water and concentrate medical attention? It’s certainly different from prior pandemics in terms of the economy, the policy response, the shutdown. This page was last edited on 29 November 2020, at 04:49. So we wanted to be close to family. Ultimately I hope we don’t see a big change in central banks, but we’re probably going to need an expansion in finance ministries to take on and regularize and legitimize some of these responsibilities. I think if they can average 1% growth the next two, three years, then that will look good. [1] In the 1990s, she held several positions in the International Monetary Fund. But we could have costs from this. (2010) ". Carmen M. Reinhart - Solving History’s Puzzles. And there was the shift to Zoom, which created more work because you’re trying to prepare differently and do your lectures differently. CR: Central banks were the arm of financing during two world wars, without question. Foreign Affairs 97.6 (November/December 2018): 84–97. [20][21], A review by Herndon, Ash, and Pollin of her widely cited paper with Rogoff, "Growth in a Time of Debt", argued that "coding errors, selective exclusion of available data, and unconventional weighting of summary statistics lead to serious errors that inaccurately represent the relationship between public debt and GDP growth among 20 advanced economies in the post-war period". It’s hard to say in China what is public and what is private, but corporates in China levered up significantly, expecting that they were going to continue to grow at double digits forever. Reinhart, Carmen M., and Christoph Trebesch. BM: How does central banking change worldwide? When this crisis began to morph from a medical problem into a financial crisis, then it was clear we were going to have more hysteresis, longer-lived effects. [2] Previously, she was the Dennis Weatherstone Senior Fellow at the Peterson Institute for International Economics. Graciela L. Kaminsky and Carmen Reinhart. If the savings are just going to be used to repay debts to China, well, that would be a tragedy. Subsequently, she spent several years at the International Monetary… If the euro zone doesn’t find a way to deal with this, maybe eurobonds might be in the picture to try to indirectly provide support. Instead it has hired Carmen Reinhart of Harvard University, one of the most widely cited economists in the world (and the most cited female economist). I’m not saying they’re not going to have a rebound after the more than 20% crash at the beginning of this year. Vincent’s brother lives in this area. Also you probably need a debt moratorium that’s fairly widespread for emerging markets and developing economies. James L. Rowe Jr. profiles Carmen M. Reinhart, who focuses on facts and history Had Miami Dade College offered a concentration in fashion design, Carmen Reinhart might never have become an economist. By a twist of fate, more than 20,000 Ecuadorians had just returned home from their seasonal vacations. The authors became the go-to experts on the history of government defaults, recessions, bank runs, currency sell-offs, and inflationary spikes. There is no debate that they should be doing all they can to try to maintain political and social cohesion, to maintain economies. That’s a shame because I think that would have been a valuable instrument, and would have been helpful for some municipals and corporates, and would have reduced the number of patients going into bankruptcy court. That, by the way, is really not the Wall Street definition of recovery, where recovery is going back to where the trend was. [9] A few years down the road, Reinhart also received her Ph.D. from Columbia University in 1988. BM: I’d like to focus on the debt issue. We came to Florida, where we’ve had a house for a decade. I don’t think we’ll return to their precrisis normal. The shock has disrupted supply chains globally and trade big-time. The monetary response has been done hand in hand with the Treasury. The International Monetary Fund is already warning that the outlook has deteriorated since it predicted in April that the world economy would shrink 3% this year. And if the U.S. government is not in, if China’s not in, it’s not really enough. So I think the settling point for Chinese growth is going to be well below 6%. graduate teaching at FIU,[10] Reinhart in 1978 went on to attend Columbia University graduate school. And my own view is that neither of those are likely to be true. CR: There is talk on whether it’s going to be a W-shape if there’s a second wave and so on. Moreover, since interest rates were already near zero, the standard monetary tool of lowering rates was not going to provide much help. Indeed, economist Paul Krugman argued that even the combination of the Oct. 2008 bailout plus the Feb. 2009 bailout did not go big enough, although Blinder states that they were large compared to previous bailouts. But it’s far easier to go the route of the G-20. This is very, very destructive within the euro zone. Reinhart, Carmen M., and Christoph Trebesch. So pandemics are not new. CARMEN REINHART: My husband and I are among the lucky ones because we can work from home. But selling it as a free lunch, that’s stupefyingly naive. BM: And what scars are left on economies once the pandemic passes? Kenneth Rogoff, and Carmen Reinhart. Turkey is in terrible shape. Our son lives in this area. China came into this with inflation running over 5% because of the huge spike in pork prices. During the early days of the coronavirus pandemic, in March 2020, Guayaquil, Ecuador’s business capital of some three million people, was in trouble. Professor Reinhart held positions as Chief Economist and Vice President at the investment bank Bear Stearns in the 1980s. Our son lives in this area. But I don’t think the U.S. is by any means all-in, and a lot of the contracts of the private sector are governed under U.S. law. In a paper co-authored with her husband, the economist Vincent Reinhart, Carmen Reinhart looked at the aftermath of the 15 post-World War II financial crises. To figure out what might be next, Bloomberg Markets spoke to Reinhart, a former deputy director at the IMF who’s now a professor at the Harvard Kennedy School, and Rogoff, a former IMF chief economist who’s now a professor at Harvard. So the hit to emerging markets is just very broad. How do we know which retailers are going to come back? The market is banking on this V-shaped recovery. [10][15] Her work has helped to inform the understanding of financial crises in both advanced economies and emerging markets. But the policy response to pandemics that we’re seeing is definitely new. Finance & Development, June 2013, Vol. But what lies at the other end? I would say, looking at it now, five years would seem like a good outcome out of this. [18], In a normal recession such as 1991 or 2000, the Keynesian tools of tax cuts and infrastructure spending (fiscal stimulus), and lowered interest rates (monetary stimulus), will usually right the economic ship in a matter of months and lead to recovery and economic expansion. 2 PDF version. She has been the Minos A. Zombanakis Professor of the International Financial System at Harvard Kennedy School since 2012.[2]. What this does mean is that the market is really counting on a lot of rescues. That’s one difference. I don’t think you just break and re-create supply chains at the drop of a hat. The American Economic Review 106.5 (May 2016): 574–580. Previously, she was the Dennis Weatherstone Senior Fellow at the Peterson Institute for International Economics. So we wanted to be close to family. Husband of Carmen Reinhart, who co-wrote “This Time is Different.” with Kenneth Rogoff. So 3% growth in that, with that Europeanizing of their population dynamics, would not be bad at all. [1] They have one son. Vincent’s brother lives in this area. CR: Chinese growth has always been very outward-looking, very propelled by export-led growth. Many … Her work has been published in scholarly journals such as The American Economic Review, the Journal of Political Economy, the Quarterly Journal of Economics, and the Journal of Economic Perspectives. So certainly we would strongly endorse doing what governments are doing. Reinhart, Carmen, and Vincent Reinhart. So the dominant economic model at the time was war production. CARMEN REINHART: My husband and I are among the lucky ones because we can work from home. Vincent’s brother lives in this area. For many emerging markets, we’ve also had a massive, massive oil shock. The market sees essentially zero chance of ever having inflation again. This Time Is Different: Eight Centuries of Financial Folly reminded readers that the catastrophic 2008-09 credit crisis was far from unique. Reinhart met her future husband, Vincent Reinhart, when they were classmates at Columbia University in the late 1970s. Outside of Reinhart's professional activities, she has received compensation for conference-related and speaking engagements, advisory boards, as well as writing and royalties. That’s a very real possibility given past pandemics and if there’s no vaccine. Selected publications. [18], Recovery from what Blinder terms a Reinhart-Rogoff recession may require debt forgiveness, either directly or implicitly, by encouraging somewhat higher than normal rates of inflation. (1999). Clearly that has been completely replaced by a view that rates are zero now and that they’re going to stay low for a very long, long, indeterminate period of time, with a lot of liquidity support from the Federal Reserve. The economic policy response has been massive and absolutely necessary. [22][23][24], Reinhart met her husband, Vincent Reinhart, when they were classmates at Columbia University in the late 1970s. It’s a very busy period even though you’re always at home. Can you imagine if this had hit 50 years ago? KR: We don’t know where we will come out. Private family services will be held at Esterdahl Mortuary, Moline, and she will be laid to rest next to her beloved husband, … Patrick R. Sullivan 14. 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