No Double Dip

Harvard professor Kenneth Rogoff has good and bad news. The good news is he does not expect a repeat of the sub-prime crisis any time soon. “You tend to be vaccinated. The worst is over but it can happen again in 15 years,” he says. Neither does he anticipate a double dip. While Greece is still floundering, the US and Europe are unlikely to go into a recession again, he says.

Rogoff also reckons the “Japan syndrome” is unlikely to materialise in the US because of its easy monetary conditions. “The US Fed will keep interest rates low for a long time.” However, the indicators don’t look so good for the Eurozone. “There is a greater risk for Japan syndrome in Europe,” he says.

Although Rogoff expects economies to recover, he doesn’t expect the US housing market to find their feet. “If you’re a country in the epicentre of a crisis like the US and UK, housing prices don’t come back for a decade,” he says. “One in five Americans are going to lose their homes. Half the people will have mortgages that are worth more than their house.”

For stock market players, there is better news. “The amazing thing about equity is that they have come back to above pre-crisis levels two to three years after the crisis,” Rogoff says. Based on his 200-year data, he observes that the S&P falls around 56% from peak to trough in a period of 3.4 years before turning around.