Saturday, October 10, 2009

Will That Debt be Paid in New Dollars or Old Dollars? Major Risk to Growth is the Financial Sector

Renowned Professor Simon Johnson recently gave a lecture at M.I.T. where he discusses the financial crisis and the U.S dollar debt, inflation, and risks. His slides are available online. Some points:

- There is no inflation for the foreseeable future
- Global inflation later: move into commodities as store of value
- Interest rates to rise (later)
- Debt to be monetized
- Spring 2008 may have been a foreshadow: rising commodity prices, declining growth prospects?
- Data from the BEA showing that sicne 1957 agriculture as percent of GDP is down 8X (down 88%). Financial sector is up 3.3X (226%).
- Major risk to innovation and growth is the "rent-seeking" ector. In the U.S , it is the financials: break-it up, preferably sooner than later or face the consequences.

About Prof. Johnson:

"Simon Johnson is the Ronald A. Kurtz (1954) Professor of Entrepreneurship at MIT Sloan School of Management. He is also a senior fellow at the Peterson Institute for International Economics in Washington, D.C., a co-founder of, a widely cited website on the global economy, and is a member of the Congressional Budget Office's Panel of Economic Advisers."


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