MARKETS The warning that “those who cannot learn from history are doomed to repeat it” is usually a caution against complacency. However, the past can teach us another lesson too – that not all crises need end badly.
We cannot judge how sustainable recovery will be or act to reduce the risk of another financial crisis if we do not understand the real cause of the downturn. A critical distinction must be made. Was the problem excessive consumer debt or was it primarily an issue of leverage within the financial system? Monetary policy will fail if consumers won’t borrow at any price.
