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India’s Central Bank Chief Sounds a Warning . . . Again

Posted on August 11, 2014

Back in 2005, Raghuram Rajan, then economic counselor at the International Monetary Fund, stood up in front of the annual meeting of prominent economists and bankers at Jackson Hole, Wyo., and gave a presentation that his listeners could never have expected.

The U.S. investor community was reveling in the high growth and stable financial conditions then prevalent around the world, but Rajan had examined global financial markets and come to a very different opinion. He argued that increasingly complex markets, which spewed out complicated instruments like credit-default swaps and mortgage-backed securities in ever greater quantities, had made the global financial system a riskier place, not less so as many believed. Such comments were considered near blasphemy at the time, and Rajan’s audience didn’t take him very seriously.

Three years later in 2008, however, his views proved prophetic. Rajan had generally predicted the sources of the worst financial collapse since the Great Depression of the 1930’s.

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2 thoughts on “India’s Central Bank Chief Sounds a Warning . . . Again

  1. We’re in the hole we are in. To reverse it by changing abruptly would create substantial amounts of damage. So I’m with Fed officials in saying that as we get out of this, let’s get out of this in a predictable and careful way, rather than in one go,”

    The Fed's problem with raising interest rates is that such action increases the Treasury's cost of debt servicing. The Treasury has a debt of almost $18 trillion and has borrowed $860 billion through the first 10 months of this fiscal year. An increase in interest rates will increase that borrowing and that may accelerate the rise in interest rates.

  2. Centurian says:

    Well, the first rule is that when you find yourself in a hole, stop digging!

    The debt plus unfunded mandates and liabilities is now over $222 Trillion. Better to rip of the bandage than to prolong and increase the suffering.

    Default on the debt to the Fed and Treasury Bondholders is the only solution and the sooner it happens, the less pain it will create. That will also force the elimination of many entitlement and welfare programs.

    The damage will happen no matter what the course of action. However this is addressed, the nation will go broke (already is), people will die, times will be tough and inconvenient. Get on with it! Time to move on to something else.