This email, purportedly from Raghuram Rajan (authenticity not verified), came to me from a former colleague. All I can say is that in these extraordinary times, public figures are expected to close ranks with the establishment or the established order.
‘Email’ from Raghu Rajan, Former IMF Chief Economist
End of what? Not the world. I think S&P overreached. Come on, US at same level as Belgium, even while it has its own currency, is a diversified continental economy, and actually has a government? S&P certainly has caught people’s attention, and may have a salutary effect, but I think it is not a true assessment of US credit risk.
I doubt double dip. Corporates are in good health, and unless demand plummets (unlikely), will remain so. Slow growth in industrial countries was on the cards, perhaps made a little slower by the bloody-minded politics in the US and Europe. I think Europe is slowly being pushed to a full socialization of sovereign and bank debts. Clearly, if they do not have the fiscal capacity to pay it, they can inflate some of it away as a last resort. Question is how much more time before they realize that this is where they are going.
Slower growth in industrial countries will help overheated emerging markets cool down. That may be the silver lining in the current cloud. We may see more panic in financial markets, but I think apart from Europe, it may be overblown. Much turns on how Europe resolves its twin crises (sovereign plus bank).