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This Time is Different: Eight Centuries of Financial Folly.(Book review): An article from: The Cato Journal [HTML] [Digital]

Kurt Schuler
3.7 out of 5 stars  See all reviews (221 customer reviews)

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This Time Is Different: Eight Centuries of Financial Folly

Carmen M. Reinhart and Kenneth S. Rogoff

Princeton, N.J.: Princeton University Press, 2009, 463 pp.

Carmen Reinhart and Kenneth Rogoff's wide-ranging, quantitative study of financial crises is a landmark work. Reinhart and Rogoff have taken advantage of the advances of the last 20 years in economic history, personal computers, and the Internet to assemble a large data set covering most countries of any importance for the world economy. They are the first researchers to base their generalizations about financial crises on data that combine geographic breadth with great historical depth.

Customer Reviews

Most Helpful Customer Reviews
531 of 562 people found the following review helpful
4.0 out of 5 stars Unfortunately, Reruns Are Already Starting! November 4, 2009
Reinhart and Rogoff's book provides a quantitative history of financial crises derived from over 600 years and 66 nations. The basic message from all their data is that there are remarkable similarities in today's financial crises with experience from other countries and nations. The common theme is that excessive debt accumulation by government, banks, corporations, or consumers often brings great risk. It makes government look like it is providing greater growth than it is, inflates housing and stock prices beyond sustainable levels, and makes banks seem more stable and profitable than they really are. Large-scale debt buildups make an economy vulnerable to crises of confidence - especially when the debt is short-term and needs to be refinanced (the usual case).

Reinhart and Rogoff go on to conclude that most of these booms end badly. Outcomes include sovereign defaults (government fails to meet payments on its debt), banking crises (heavy investment losses, banking panics), exchange rate crises (Asia, Europe, Latin America in the 1990s), high inflation (a de facto default), and combinations of the preceding (1930s, today).

What did the authors learn from their data digging? Severe financial crises share three characteristics: 1)Declines in real housing prices average 35%, stretched out over six years, while equity prices fall an average 56% over 3.5 years. 2)The unemployment rate rises an average of 7 percentage points during the down phase (average length = four years). Output falls more than 9% over a two-year period. 3)Government debt tends to explode, an average 86% in real terms. The biggest driver of this debt explosion is the collapse in tax revenues; counter-cyclical fiscal policy efforts also contribute, as well as spiking interest rates.
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438 of 471 people found the following review helpful
5.0 out of 5 stars Prodigious and full of gallows humor October 3, 2009
Format:Hardcover|Verified Purchase
Rogoff and Reinhart, two very substantive (and, I might add, earnest) economists, have produced a prodigious work which will be read and studied for years. They have gathered mountains of data from primary and secondary sources and reduced it to dozens of charts and graphs, a heroic work in its own right. Their intention, God bless 'em, is to lay out the follies that have led to economic/financial crises over the last eight centuries. Their findings: humans have not learned from past mistakes. The title is ironic and is worthy of Peter DeVries.

The authors say it is "almost comical" that no governments reveal their true financial condition today, nor have they done so in the past. The lack of transparency and the shenanigans that go on behind the curtains contribute, of course, to the human suffering that ensues in crisis after crisis.

One needs to find this book comical if one is not to slip into a permanent depression about the utter failure of national leaders to address shortcomings in national domestic and foreign economic policies in order to avoid systemic crises. No one has, from the 13th century onward, anywhere in the world.

The authors persist in saying that they hope their monumental effort will lead to an examination by policymakers of past mistakes and help them avoid future mistakes. I say, "Good luck with that." In my opinion, this book ranks with the complete works of Shakespeare in illuminating the human condition. Or Bruegel, or Beethoven. It will not bring about change, but it will entertain in a deeply satisfying way.
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200 of 215 people found the following review helpful
Format:Hardcover|Verified Purchase
Be prepared for a very sobering and complete review of eight centuries of financial crises, complete with charts and graphs that even those who fell asleep in the Macro 101 in college should be able to understand. This book is worth reading in its entirety, but chapters 13 to 17, in which the authors draw important lessons from the 800 years of financial folly for the present course of the "Second Great Contraction of 2007" and its aftermath, make this volume well worth the price.

Also, be prepared for some sobering analysis of the effectiveness of central banks and government policymakers in addressing economic crisis (yes, regrettably, still not very effective even with the benefit of 800 years of history and analysis to draw on). You will learn why This Time is Ultimately Not That Different in so many ways. Carmen Reinhart is a brilliant economist and Ken Rogoff worked at both the Fed and the IMF so they are in a unique position to evaluate the global scope of the 2nd Great Depression in modern history, and it is the very global nature of this event that leads them to conclude that the aftermath with be long-lasting and have profound effects on the global economy for many years to come.

While documenting the fiscal policy response to the Second Great Contraction of 2007, including the massive global government bailouts in the banking sector, Reinhart and Rogoff point out that the size and long-term impact of these measures, while profound, may be dwarfed by the effects on the U.S. national deficit and national debt of reduced Federal tax revenues during the global downturn. With such high levels of debt and limited means to reduce government expenditures to compensate for sharp reductions in tax revenues, the ultimate effect may be a debasing of the U.S.
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Most Recent Customer Reviews
5.0 out of 5 stars Driving the car using the rear view mirror...
Just when you have got it all figured out, everything changes...
Published 2 days ago by A. Meyer
3.0 out of 5 stars ok
Pretty good book but a bit wordy. If you're into finance or take care of your own investments a good book
Published 4 days ago by different
2.0 out of 5 stars A thorough critique on the book by a Modern Money ...
A thorough critique on the book by a Modern Money Theorist, Mr. Wray, the book grounds on messy theoretical reasoning.
Published 1 month ago by Leung Wai Man
4.0 out of 5 stars Four Stars
good read.
Published 1 month ago by Robert B. Burns
2.0 out of 5 stars A technical read
A hard read unless you have a solid understanding of finance and markets and such. It's a little out of reach for me.
Published 1 month ago by Doug K.
5.0 out of 5 stars Five Stars
great book as described
Published 2 months ago by Tom Flint
4.0 out of 5 stars Proof Financial Mismanagement Repeats Itself and Important Lessons...
This is a very important, "must read" book. An excellent analysis of history, and where the monetary and fiscal policies of western world central bankers and governments are going... Read more
Published 3 months ago by Jerry Zakariasen
3.0 out of 5 stars meh
not very readable
Published 3 months ago by Frances Bennatti
5.0 out of 5 stars it is a pretty stiff read
Okay, it is a pretty stiff read. But the facts are critically important.

Learn from history.

Recognize the patterns.

Or else.
Published 4 months ago by S. D. Butler
3.0 out of 5 stars Three Stars
good book
Published 4 months ago by Bryan Flynn
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