Tags: simon | johnson | china | crisis

Simon Johnson: China to Fuel Huge Catastrophe

Thursday, 14 Jan 2010 08:27 AM

The crisis in the economy has just started, says Simon Johnson, an economist at MIT’s Sloan School of Management.

Emerging markets such as China, will be the next crisis, he said.

While the majority believes that big banks are too big to fail, that belief is a misnomer, he told CNBC.

Banks are beginning to act in irresponsible manner, Johnson said.

“We are setting ourselves up for an enormous catastrophe,” he said.

Although conventional wisdom says the markets can't have major back to back financial crisis, that scenario could occur, Johnson said.

The next 12 months will determine the outcome.

“The market is very clearly saying that they think there is going to be another bailout, more bailouts, unlimited bailouts, as necessary. And those expectations of course are self-fulfilling," he said.

"If people believe that, they will put money in, they will lend money to these massive institutions. They will get bigger. They will become even more dangerous. They will behave in a reckless fashion," Johnson said on National Public Radio. 

"This has to stop. And the Federal Reserve is not addressing this,” Johnson said.

The U.S. economy’s rebound is being hampered by continuing job losses, The Times reported.

However, economists said that when the U.S. Census Bureau hires 1.15 million temporary workers in the spring, it will help.

“They’re going to hire an army of people. This acts as a stimulus package and is a timely coincidence, coming so early in the recovery,” said Julie Coronado, a senior economist at BNP Paribas in New York.

Paul Ashworth at Capital Economics, the research house, said unemployment remains a major problem.

“The labor market is getting better, but it is still a long way from being healthy again,” he said.

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The crisis in the economy has just started, says Simon Johnson, an economist at MIT s Sloan School of Management. Emerging markets such as China, will be the next crisis, he said. While the majority believes that big banks are too big to fail, that belief is a misnomer,...
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2010-27-14
 

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