economy - Waiting for the unavoidable financial crisis


Professor Lester Thurow was one of very few dissenting voices at the 2004 China International Conference in Finance, organized jointly by CEIBS, MIT Sloan School of Management and the China Center for financial research at Tsinghua University now in Shanghai.
Surrounded by Chinese officials that tried to explain how they worked hard to prevent a financial crisis in China, Thurow stated that a financial crisis would be as unavoidable as the upcoming earthquake in San Francisco. "It can happen tomorrow, it can happen in hundred years time," Thurow said. "You have to be prepared for the day when it happens and be able to clean up the mess you will have."
He compared the way how the US dealt with the savings and loans crisis in the late 1980s through a solid bankruptcy legislation, and Japan where the crisis drags on for already twelve years because similar tools are not being used.
Whatever China would do to prevent a financial crisis, it would in the end not be enough, since the crisis could also be triggered off by events outside China, Thurow argued. The US has a trade deficit of about 500 billion US dollar. When that money is going to disappear, China will have a problem of 100 billion US dollar. Thurow: "Such a crisis will cost worldwide 25 million jobs, most of it in China."
Could something be done to prevent this crisis, the audience wanted to know. Thurow: "You can stop selling to the US. But then the crisis will most likely come sooner."
Thurow: "The government has put a lot of research to find out when San Francisco will be hit by this earthquake. They cannot find it out. It is the same with this financial crisis, you only know it will happen."