This a working document issued this week by the IMF. It’s essentially an internal report by their statisticians analyzing all national liquidity crises that have occurred since 1970. There are things worth calling attention to, in it: There were 124 “systemic banking crises” spread across dozens of countries between 1970 and 2007. Almost every nation on Earth is in the list — except Canada. We’ve never had one.
The average fiscal cost, net of recoveries, associated with crisis management can be substantial, averaging about 13.3 percent of GDP, and can be as high as 55.1 percent of GDP. Think of this in relation to the U.S. economy! There is no end in sight to the line-up of pigs at the trough, and even if the final cost in the U.S. is well below the average, it would make the amount so far look like pocket change.
Output losses averaged about 20 per cent of GDP during the first four years of the crisis, and range from zero per cent to a high of 98 per cent of GDP. “There appears to be a negative correlation between output losses and fiscal costs, suggesting that the cost of a crisis is paid either through fiscal costs or larger output losses. Furthermore … even in the absence of significant government intervention, fiscal losses may be large due to tax revenues forgone because of higher output losses.”
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