Economists bore the brunt of criticism in relation to the Financial Crisis because its theories failed to predict it. Since 2009, there has been much soul searching and debate within the profession, but are we any closer to being able to predict the next financial crisis?
One of the causes of the Financial Crisis was the increase in debt taken on by banks and financial institutions around the world, and by ordinary people. Whether it was taking on debt to buy property, to finance holidays, or buy consumer goods, the build-up of debt fuelled what some believe were ‘bubbles’. Given how painful the Crisis and its aftermath has been, surely we have all learnt our lesson?
In early 2019, the IMF published an update on its Global Debt Database providing data on public and private debt for 190 countries. The highlights of the update are that global debt is the highest it has ever been at a nominal value of $184 trillion (€160tn/£140tn). This is the equivalent of $86,000 per head of the global population and 2 1 2 times average per capita income. It is estimated at 225 per cent of 2017 global GDP. The United States, China and Japan 

account for over half that total. Private sector debt has increased by three times its 1950 value. Ian Stewart, Chief Economist for Deloitte, has noted that global debt has risen by 60 per cent in the last 10 years, a rate far faster than global growth.
Stewart points out that a particularly concerning development has been the stalling of the measures by banks to improve their balance sheets and reduce their reliance on leverage. The sovereign debt crisis resulted in the ECB providing cheap credit and he points out that ‘euro area financial institutions are more heavily indebted now than in 2007’. Stewart concludes by saying: ‘A global financial crisis, like 2007–08, is to be feared and resisted. In a dynamic economy smaller scale blow ups, where the damage is confined largely to the players, are necessary correctives to excess.’
The former governor of the Bank of England at the time of the Financial Crisis, Mervyn King, has written on aspects of the Crisis and what should be done to prevent another in his book The End of Alchemy: Money, Banking and the Future of the Global Economy. King is pessimistic that enough lessons have been learned to prevent a further crisis.
He points to a disequilibrium in global economies between spending and saving, which is not being addressed through appropriate changes in international currencies to reflect trade flows. King notes:
Fifty years from now, will our grandchildren ask why we lacked the courage to put in place reforms to stop a crisis happening again? I hope not. Events drive ideas, and the experience of crisis is driving economists to develop new ideas about how our economies work. They will be needed to overcome the power of vested interests and lobby groups. 

Critical Thinking Questions
1 Given the information in this chapter, do you think it is fair that economists have ‘borne the brunt of criticism in relation to the Financial Crisis’?
2 Do the figures given in the chapter on the size and growth of debt suggest that we are heading for another financial crisis? Explain.
3 Do you think that the actions of the ECB in providing some euro area banks with ‘cheap credit’ is just another example of central banks bailing out banks who refuse to take responsibility for their actions?
4 Critically assess the quote by Ian Stewart when he says that ‘smaller scale blow ups … are necessary correctives to excess’.
5 Why do you think the ‘power of vested interests and lobby groups’ might be needed to be overcome, as Mervyn King argues, if new ideas in economics are to have any effect on future reform of the financial system?