The Nobel Prize laureate, Yale University professor of economics Robert J. Shiller was the first to share his opinion on immediate risks. He started with a comparison.
“If you ask a cardiologist what is the main risk for you, his answer would be completely different than the one from the oncologist. Future always surprises us, just take a look at the Ukraine crisis: why is it happening right now? If we are talking about finances, interest rates have almost reached historical lows and there is a possibility that they will start changing,” said Shiller.
It is not the first time when economists visiting Lithuania talk about the possible growth of interest rates in line with interest rate shock.
Earlier, the Chairman of the Board of the Bank of Lithuania Vitas Vasiliauskas warned about such situation. According to him, precisely because of this reason the Responsible Lending Policy will be changed in Lithuania in November 2015. The aim of these changes is to protect residents from over-indebtedness and preserve the financial system.
During the discussion in Lithuania, Shiller mentioned that more countries have noticed the risk of interest rate shocks and are trying to prepare for it.
“We can observe different structural reforms and reorganizations going on, but is it possible to say that markets are ready for a new crisis?” asked the economics professor.
The guest from Denmark, head of Global Research team at Nordea Niels From noted that the biggest difficulty was to learn anew about the functioning of financial markets. That, according to him, is a great new challenge.
Although economists complimented the US economy for finally taking hold, the head of OECD economic research and planning division Andreas Woergoetter noted that worrying trends were still there.
“The risks obviously lie in the financial sector. It has been spoken for some time now about the normalization of the US financial policy – these are good efforts but they still sound worrying,” noted Woergoetter.
According to him, when the situation in financial markets goes back to a normal and stable position, the risk of a new crisis increase.
“It is obvious – when the system returns to a normal monetary policy, it won’t be possible to manage it in ordinary ways any more,” explained Woergoetter.
Fears of the people
Shiller started his presentation at the Baltic Investment Forum with a story about his family. Although he introduces himself as having both American and Lithuanian roots, the reality is much more complicated.
The professor showed a photo of his family with the President of Lithuania Dalia Grybauskaitė and explained that he had relatives not only in Lithuania and USA, but in China and Russia as well. “That is the modern world,” he concluded.
Shiller believes that nowadays many people feel that fundamental changes are taking place no matter where they live. First of all there are technological changes – such as smartphones and computers. Many people start to worry whether these technologies are not taking over their roles and lives.
“You can ask your smartphone to tell where you are and it will answer. You can ask it where the nearest place to eat is and it will answer. People can download all the studying material and read it in their computers therefore they start to question the value of university studies,” explained Shiller.
Asked about the future of Lithuania, the economics professor said that he can only admire the quick integration of technological innovations into Lithuanian economic system.
“I have visited Barclays and saw teams working for a bank in London, using innovative technologies. People have great technological education here and they do not need to live in London in order to work there – they can work from Vilnius, too. It is a great model for the Lithuanian economy,” said Shiller.
When asked about potential threats, Shiller noted that the biggest risk in the region was Russia, whereas in the global domain the risk was posed by the bond market – here the threat come not only for Europe, but for the US, too.
“While the stock market had fallen more than once, the bond market is growing continuously. Can it last?” asked Shiller. “The prices in the bond market are very high today due to the policies of national central banks during the financial crisis.”
According to the economics professor, this situation points at a fundamental weakness of the world economics.
“I think it is related to the financial crisis that came seven years ago – it is still with us. There are other worrying circumstances, too, such as public anxiety about the growing inequality, development of technologies and information systems – it changes everything. People are equally worried in China, Africa or Lithuania (and everywhere else) as they see rapid changes taking place. Therefore it is great that Lithuania works with innovative technologies – it is a key to the future,” according to Shiller.
When asked about the future of Greece, he did not criticize the country’s policies.
“Greece is facing a crisis now, but I think it will manage to straighten up. It looks like Greece and the EU are both playing some kind of a game,” Shiller said.
According to him, in order to save the euro, Greece is made to suffers from extremely high levels of unemployment. Therefore it should not be expelled from the eurozone, on the contrary – it should be saved.
“Maybe I am too generous, but I think they have suffered a lot. Of course, it is easy for me to speak when I do not need to participate in the saving process – you do,” said Shiller.
International business, public sector and political leaders, experts of economics, journalists and diplomats from all over the world participated in the Baltic Investors Forum which took place in Vilnius on 4-5 June 2015.
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