Trichet was wrong about a "new, dramatic global crisis". What Are the Lessons and the Questions?

Four years ago I published a post on this blog saying that former ECB president Jean-Claude Trichet was warning about the danger of "a new, more serious crisis than the one we have been facing over the last ten years." Since it has turned out that he was wrong, what lessons can we draw, what questions can we raise, and what answers can we give?

"At the global level, considering the level of total indebtedness as a proportion of the world's consolidated GDP as a good indicator of vulnerability, we are more vulnerable to a global financial crisis today than in 2008," said Trichet four years ago in an interview with the Swiss journal Le Temps.

At the time, November 2017, I sent the interview with Trichet to a Fondad Group of forty international experts on the global financial system (FG40) asking them for a more in-depth analysis of the problem than given by Trichet, and their view on how to improve the global financial system and prevent the emergence of a new, dramatic global crisis.
 

Robert Aliber

Robert Aliber, famous expert and author of the classical The New International Money Game, was the first one to react, in a sarcastic way: "How many memoirs are there on the continent [Europe] of central bankers who were in power at the time of the crisis [in 2007-2008]..." 

Christian Ghymers commented a few hours later: "As you know, we share Trichet's view and see also the next big(gest) crisis around the corner - and this time without rooms for manœuvre - except if the SDR could be effectively mobilized and transformed rapidly along the lines we try to push with Triffin Foundation (RTI) and our publications and interventions, in particular at the G20 Ministerial last year (see my PowerPoints attached) and in other joined short publications."

Christian Ghymers

Christian Ghymers and I are both on the Board of the Triffin Foundation (RTI). We got to know each other in the 1980s when Christian worked with Robert Triffin and I, because of my research into the root causes of the global debt problem, went to visit Triffin in Louvain-la-Neuve and had long conversations with him in 1984 - see "The International Monetary Crunch: Crisis or Scandal?", Alternatives, July 1987. 

Andrew Sheng

Andrew Sheng, former central banker (he was Deputy Chief Executive, Hong Kong Monetary Authority) and author of, among other books, Shadow Banking in China, was the third of the Fondad Group of 40 experts to react immediately. He said, "Congratulations, Christian, for spelling out the pros and cons of moving to the SDR system. The issue has always been political, with the incumbent resisting any ideas for change unless there is crisis." 

Lessons and Questions

Four years have passed since Jean-Claude Trichet sent his alarming prediction to the world. As it turned out, he was wrong: there was no "dramatic new world crisis" coming. (Or is such a crisis still imminent, and will it come sooner than we hope and think?)

The following (provocative) questions emerge to me:

1. Should we no longer take (too) seriously the dramatic warnings of thinkers predicting global financial catastrophe?

2. Is the global financial system more resilient than its critics (including me) want us to believe?

3. Is a reform of the global financial system (including advocated by me) not necessary anymore?

4. So is there no need for endless debates about how to improve the global financial system?

5. Can we be confident that the international financial authorities will take the necessary steps to properly manage the next global financial crisis? (Manage, yes, prevent, no.)

6. Discussions about replacing the US dollar with the SDR (as promoted by RTI on whose board I serve) are of marginal importance?

7. Should we instead focus on existing and possibly new procedures to best manage an impending global financial crisis?

8. Should we not waste our precious time in endless and pointless discussions about things that could go wrong, but rather focus on what is going well and what could go better?

9. Should we be pragmatic, phlegmatic and level-headed, rather than idealistic, nervous and high-flying?

10. Should we look to the future more from the bright side of the street?!

I'm going to ask my friends from the Fondad Group of 40 experts what they think about these questions and what answers they have.