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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 (213 customer reviews)

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Editorial Reviews

Excerpt. © Reprinted by permission. All rights reserved.

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
525 of 555 people found the following review helpful
4.0 out of 5 stars Unfortunately, Reruns Are Already Starting! November 4, 2009
Format:Hardcover
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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437 of 470 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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198 of 212 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
3.0 out of 5 stars Three Stars
good book
Published 2 days ago by Bryan Flynn
5.0 out of 5 stars The classic book on financial crises.
This baby is THE classic on financial crises as we know them today. Very readable, lots of information and references, this book will tell you everything you need to know regarding... Read more
Published 8 days ago by Nicholas Roberts
3.0 out of 5 stars Recommend Kindleberger's Manias
Quite dense, struggled to get started and never finished. Recommend Kindleberger's Manias, Panics, and Crashes for something a little more accessible
Published 13 days ago by Will
1.0 out of 5 stars too technical?
The title suggests story telling of financial follies repeated over 800 years and analysis of problems behind them. But the book tells very little of those. Read more
Published 23 days ago by Hitoshi Masuya
5.0 out of 5 stars I understand that some smart guy found a bug in their spreadsheet...
I thought it a well researched and presented tome on a very topocal subject - government debt. I understand that some smart guy found a bug in their spreadsheet which puts the... Read more
Published 1 month ago by Karel Vlok
2.0 out of 5 stars Save your money
Unable to finish this book. Dry Dry Dry.
Published 2 months ago by snymur
5.0 out of 5 stars Five Stars
Happy customer
Published 2 months ago by Carlos
4.0 out of 5 stars Four Stars
Great Book
Published 3 months ago by Phan
4.0 out of 5 stars I must read broadly and choose great books. This book was special
Because I am an educator who people trust and respect, I must read broadly and choose great books. This book was special, and I purchased it from Amazon for a wonderful Price.
Published 3 months ago by Freddie Lee Haddox
4.0 out of 5 stars This book employees an empirical approach to the question of ...
This book employees an empirical approach to the question of early warning/detection of financial crisis. Read more
Published 3 months ago by Chi
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