• Lisa Simpson
• Jul 9,2010
• In: Foreclosure

Alan Taylor Warned about the Next Financial Crisis

A prominent economist has warned that the world should prepare itself for the next financial crisis by undertaking reform in the banking sector and understanding the market condition in a more comprehensive manner than hitherto. Professor Alan Taylor is not sure how long the present slowdown would continue. He does not think that the crisis is over.

On 12th March this year, Taylor of Center of the Evolution of the Global Economy was speaking to a gathering of 75 persons at the Institute of Governmental Affairs’ Policy Watch Seminar Series. He said, “It’s a very, very bad recession compared to what we’ve seen in the past 50 to 60 years. The financial instability should have been understood.” He pressed upon the pundits of economics and policy makers to study the data and not be guided by “hubristic beliefs” when calculating the risks in the economy.

In general it takes a year to 18 months for a recovery to happen but this one is not the same because of the staggering unemployment rate running through the 50 states combining with the credit freeze. California and Michigan tops the list with an unemployment rate of 12% and 14% respectively.

Taylor said that the loss of jobs cannot be accepted. It was a “manifestation of a failure” of either the financial sector or the leaders of the country; maybe both were to blame. Taylor commented, ‘The problem is worse than expected.” He however added that the shape of the economy would have been worse if the stimulus plans had not been undertaken.

What is to be noted is that while the stimulus funds are drawing to a close other cracks like commercial foreclosures are showing up. Consumers are continuing to be modest in their spending and this will further pull brakes on the economy. Thus he does not think the downturn has reached its peak. He thinks, “We’re approaching a bottom” of the crisis that is however not as bitter as the experience of the Great Depression of the 30s. But the similarity is close enough to cause shudders.

Homeowners are continuing to battle with their housing debts and for many the situation is impossible with the value of houses having fallen to less than the loan amount. He said, “The mortgage debt relative to the value of houses is at an all-time high.”

Taylor however is not much concerned about inflation – the latter being 1% or so currently. He said that ‘in the data, there is no evidence yet” of a tendency towards fast inflation.

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