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🚨 This crisis could push multiple countries into recession. Kenneth Rogoff, former IMF chief economist, says prolonged disruption would hit inflation, growth, and financial markets worldwide. He says the longer it lasts, the worse the impact becomes. Kenneth S Rogoff

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Japan was richer per capita than the US in the late 1980s. Today it sits at the bottom among developed countries. How does an economic superpower fall this far and never recover? Kenneth Rogoff (former Chief Economist of IMF) walked me through what he believes was a catastrophic mistake. In 1985, the US pressured Japan to rapidly strengthen the yen and liberalize its financial markets through the Plaza Accord. The yen doubled in value in just 3 years. To offset the economic shock, Japan slashed interest rates and flooded the economy with cheap credit. Japanese banks, suddenly freed from decades of tight regulation, went on a lending spree. They poured money into real estate and stocks with little risk assessment. Japan's stock market became worth more than the US stock market despite having half the population. The total value of Japanese real estate was 4 times the value of all US real estate. When the bubble burst in 1991, banks were left with massive bad loans. The entire financial system seized up, creating a "lost decade" of deflation and stagnation. Here's what stunned me: Rogoff estimates Japan would be 50% wealthier per person today without this crisis. I didn't grasp before this interview how devastating financial crises are. They don't just cause a temporary recession - they permanently alter a country's growth trajectory. Three decades later, Japan still hasn't recovered. Full interview with Kenneth S Rogoff out tomorrow.

Dwarkesh Patel

426,593 views • 1 year ago