Monday, June 7, 2010

Rogoff's Predictions Were on Target

About one and a half years ago, according to BusinessWeek, Harvard economist Kenneth Rogoff made the following prediction during the 2009 AEA Meeting:
... Rogoff was more pessimistic: At lunch on the first day he predicted that "what we will see next is a wave of sovereign defaults." He also pointed out that government debt historically increases by 86% in a crisis, in real terms. If the U.S. follows the same pattern, that would mean roughly $6 trillion in budget deficits over the next three years as tax revenues drop and government spending rises.
His predictions, at least when it comes to order of magnitude, were on target, see for example the graph below representing only the federal deficit.

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