August 25, 2015
Andrew Ross Sorkin seems prepared to pronounce Ken Rogoff to be prescient once again with his prediction that China would run into a debt crisis. Rogoff’s past claims to prescience might be viewed as somewhat questionable. He, along with co-author Carmen Reinhardt, famously argued that countries face a severe slowdown in growth when their debt to GDP ratios exceed 90 percent. It turned out that this claim was driven by an error in an Excel spreadsheet, nonetheless it was used to justify austerity in the euro zone, the United States and elsewhere. This austerity did help to worsen the downturns caused by the collapse of asset bubbles, in effect contributing to the crisis that Sorkin credits Rogoff with predicting.
Anyhow, the jury is still out as to whether China will face a serious slump due to its market downturn, as Rogoff himself is quoted as saying in Sorkin’s piece. The prediction on which Rogoff and just about everyone else in the world has been proven correct is that China’s stock market bubble would burst. (It had risen by 150 percent between June of 2014 and June of 2015.) Rogoff does not seem prepared to say even now that this will lead to a more general collapse of China’s economy.
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