Speaking last week at a London School of Economics event on the Next Crisis, the former interest rate setter – who lived through the secondary banking crisis of 1974-75, the 1990-91 recession and the most recent 2007-08 catastrophe – said the next storm to hit will be in 2025 or 2026 as a 17 year cycle repeats itself.
Goodhart reckons the cycle is driven by “bog standard retail banking, commercial property and massive credit expansion”, London’s Evening Standard reported last week.
In his excellent economic analysis the paper’s Russell Lynch writes: “The UK is apparently more crisis-prone than other developed economies in the OECD, which hit the rocks every 42 years on average. In the professor’s view, after five years recovering from the shock, there’s about eight years of pretty steady recovery where property prices rise faster than inflation – and then another three or four years during which the “wonderkids” who made money for the banks in the steady recovery period are now in charge and they keep on doing what they’re doing, leading to disaster.”
Goodhart told the audience: “We’ve not got to the end of crises,” adding that there are risks around financial innovation when products designed for hedging (such as credit default swaps), are used in speculation.
