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SUBJECT : "This is Not a Third Great Depression": Niall Ferguson   [ allforu62 ]   2010.10.13

Professor Niall Ferguson gave a presentation titled, “When East and West Meet - The Global Financial Crisis in Historical Perspective,” on the first day of the World Knowledge Forum on October 12th.

Ferguson started his presentation by citing Paul Krugman’s concerns on an impending third Great Depression, following the depressions witnessed in 1870s and 1930s, and rejected the premise that we need more stimulus-oriented policies to prevent a disaster.

As evidence, Ferguson referred to drastically divergent trends in global industrial output and trade. Unlike previous depressions, the trend of dramatic contraction in 2008 and 2009 turned around to stabilization and recovery since the summer of 2009.

Ferguson also singled out China as a clearly atypical symptom of the global economy. “China is clearly not in a depression, and it did not even experience a recession,” he said. This is despite fears that China’s over-reliance on exports to US would make it sink along with the slowdown in US, and China had sustained growth at near 9%.

In regards to the sovereign debt crisis in European countries of Portugal, Ireland, Greece, and Spain (PIGS), Ferguson expressed regret that their debt issues had spread to an international issue, but advised a more expanded analysis, saying that these countries were suffering from inherent problems such as the aging population and the welfare state, and the financial crisis had merely accelerated the demise.

The stimulus programs in developed countries have “turned the world upside down” he continued.

“In the old days, it was emerging markets that had debt crises: Latin American countries and some emerging Asian countries, not developed countries. In the wake of the financial crisis, it the developed countries that find themselves in the grip of a public debt crisis, while emerging countries are in fact reducing their debt burdens.”

Ferguson also summarized the international society as a conflict between inflationary and deflationary forces. China fears inflation, while US fears deflation.

Ferguson concluded his session by citing the changing axis of global power structure.

“It is a tale of two worlds: a deflationary developed world and an inflationary emerging world. The shift from West to East goes on unabated, and I believe the financial crisis has speeded it up. Shares of world GDP has been decisively moving from the West to the East,” he said. “When you look at the ratio of US per capita GDP to China’s per capita GDP, the speed with which this gap is closing is truly astonishing.”

[Written by Jung-hwan Bang, Ki-chang Lee - Samji Chung, edited by Soyoung Chung]

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