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on September 27, 2014
In his newest book, Martin Wolf relentlessly explores the ins and outs of the financial and economic crisis which began in 2007-2008.

Mr. Wolf first reviews the shocks that have humbled many high-income countries, whose subdued performance stands in sharp contrast with the strong showing of many emerging and developing economies in the aftermath of that crisis.

1. A credit crash that has forced many households and businesses to stop spending consistently more than their incomes.
2. A reconfiguration of entire sectors of activity such as construction and finance in many high-income countries.
3. The higher cautiousness of chastised financial institutions in a changing regulatory environment.
4. The specter of deflation, or at least, consistently falling inflation rates in many high-income countries, especially in the Eurozone.
5. The vicious circle behind the weakening of the “animal spirits” of businesses in the same economies.

The author then clearly articulates the shifts that have led to the fragility of the world economy:

1. No living memory of the large financial and economic busts of the distant past, which bred complacency among the economic, financial, intellectual, and political elites of the West before 2007-2008.
2. No clear understanding of the ramifications associated with the evolution of the financial system, i.e., liberalization, globalization, innovation, leverage, and incentives, among the same elites.

Subsequently, Mr. Wolf reviews what has been done to make the financial system more resilient than it was before the above-mentioned crisis. The author is clearly not impressed with the post-crisis central-bank orthodoxy as it is embraced in the high-income countries of North America and Europe. He dubbed it the new orthodoxy, i.e. inflation targeting, macroprudential policy, the strengthening of the role of central banks as lenders of last resort, and the orderly resolution of troubled institutions. Mr. Wolf is especially critical of the sheer complexity of the regulatory structure that will probably be dead on arrival in the recurrence of a major financial and economic crisis. Unsurprisingly, the author pleads for a significant increase in the capital requirements of banks as a key improvement to the new orthodoxy.

Finally, Mr. Wolf makes the case for radical reform. Radical reform does not include liquidationism light as practiced within the Eurozone under the influence of Germany. Fiscal austerity, asymmetric adjustment of competitiveness, and limited assistance with recapitalization of banks in crisis-hit countries will probably not turn around the fortunes of these countries that are operating in less auspicious external circumstances that those that benefited Germany previously.

The author mentions as examples of radical reform the creation of a global currency to replace the national currencies currently used as anchors of the system, or a partial break-up of the open world economy. Mr. Wolf makes himself no illusion about the feasibility of these radical reforms. It will depend on 1) what sort of recovery emerges and 2) how much risk societies will be prepared to tolerate.

In summary, the author calls for a reassessment of the merits of the new orthodoxy which will probably fail too many economies in dealing successfully with the recurrence of a major financial and economic crisis.
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on October 30, 2014
Martin Wolf has a problem with Germany. His book is full of bank bashing and German bashing. They are easy targets so why not take a free kick and win some popularity. He is a greater wordsmith than Alan Greenspan. So what did I learn? The financial world is still fragile, the next crash will be bigger, in Europe the crisis is not over, it's a balance of payments problem, weak demand etc. etc. Wolf tells you very precisely how imprecise the world is. Not sure if that really helps? But then he comes up with simple but brilliant conclusions, for example, Europe can blame Germany and the U.S. can blame the banks.

In Wolf's Conclusion Chapter (page 341) he writes that Europe, under German influence, has sought to introduce Liquidationism but only on crisis-hit countries which has imposed huge costs on the peoples of some member countries. On page 177 he writes "The problem, in brief, is Germany". On page 337 "In accordance with the views of Germany, the reformed Eurozone is designed as a system for imposing discipline upon wayward countries: it is a 'discipline union'.....In essence, then, member countries are free to do precisely as they are told". Lack of discipline is what got these countries into trouble in the first place, so to argue against discipline does not seem very clever to me.

On page 339 Wolf writes "the cost would be borne by the hapless taxpayers of the crisis-hit countries". BUT THESE CRISIS-HIT COUNTRIES WERE NEVER TAXPAYERS. In 1994 I spent a week on the Island of Santorini Greece. The economy on this island was booming already back then, new hotels were being built, restaurants were busy, and they were expecting a huge influx of Russian tourists after the fall of Communism. One restaurant had a queue of customers at the door each night. One night I said to the owner, you need a bigger restaurant, why don't you expand? He told me without hesitation, no one pays taxes in Greece, it's 90% cash, he doesn't know what to do with all the money he is already making, why would he need a bigger restaurant? Wolf argues that the Germans knew about this problem yet kept lending money, so it's just as much their fault, yet they should now keep lending money because to get out of so much debt you need more debt (page 273). That may be true but nowhere in the book does he explain how to change these peoples' character. Have you ever done business with them Mr. Wolf? My family bought a business in Sydney, managed by some Greeks. You have no idea how callus and dishonest they were. My family suffered for over a year. What goes around comes around. I have little sympathy. And to speak of these countries being in a depression is a beat-up, simply scaremongering, to make Germans look bad.

It's a culture problem, and yes, if they don't like discipline they should leave the union. Many Greeks and southern Italians have already moved here to Australia over the last 50 years, and they are thriving here. They should all come to Australia! Not much discipline here to worry about and maybe the Germans could even pay for the flight over......? Would the US consider taking some as well?? Detroit has many empty houses, maybe the unemployed Greeks, Italians and Spanish might move to Detroit to get away from their depression? Even if you paid them, I don't think they would go. Maybe the Germans are not so bad after all?
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on October 22, 2015
Martin Wolf is a genius in his field, most negative publicity comes in the form of his controversial and subjective writing form. I came in with this mindset and loved the book. The book itself is a combination of facts as well as his own personal opinion on certain subject matters, a format that I found to be quite effective. He begins with an all-encompassing review of the determinants of the financial crisis and the Eurozone Crisis, and then delves into a number of interesting policy implications as well how the wold will recover from such a catastrophic event.

His rather blunt writing style is something I have always enjoyed, he does not dance around the facts but instead throws them in the readers face. I had the fortune of attending two of his lectures in Oxford regarding his book and he speaks in the same manner in which he writes. He allows for a gradual increase in complexity when it comes to presenting the determinants of the multiple crises.

Although a daunting task at first, this book provides one of the most comprehensive review of the financial crisis and Eurozone crisis. He looks into future implications (e.g. the viability of Anglo-Saxon Capitalism) which I found extremely interesting. A must read in my opinion.
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on November 24, 2014
It is very detailed and at times repetitive but presents convincing arguments concerning the world's economic problems. It really appears that many of the world leaders that guide our economic ship are heading in the wrong direction, I would not recommend this to the casual reader because of the difficulty in reading it.
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on November 2, 2014
The Shifts and the Shocks is Martin Wolf's latest book is on the financial crisis, its aftermath and the lessons we need to learn from it. It is an economic analysis of the crisis that looks at both micro and macroeconomic currents that took us to where we are as well a policy guide to fixing an economic system that the author believes is on an unstable and unsustainable path. There is a lot in this book and it discusses a lot of interlinked ideas and as a result it should not be read too lightly. The strengths of the book are on its analysis of global account imbalances while the views on the role of fiscal authorities and central banks will be considered a lot more questionable by many readers.

The Shifts and the Shocks is a three part book. The first part is titled- The Shocks. The author gives an account of the financial crisis and the sequence of events that took us to where we are. It describes the differences in the ways emerging markets faced the financial crisis and the way advanced economies faced it. The book starts by looking at the US, the structure of finance their with the interlinkages of broker-dealers and banks and mortgage finance giants Freddie and Fannie. It details the sequence of events starting in 2007 with the suspension of redemptions at BNP funds through the fall of 2008 with the collapse of Lehman and bailing out of AIA subsequently. It describes the political atmosphere and shows how the spreads on interbank markets reflected a failure of financial intermediation. The author then moves on to the snowballing existential questioning of the Eurozone. The Eurozone had a shock of a different nature- it came to face the fact that it was not an optimal currency union and the intertwined links between banks and sovereigns was a fundamentally unstable pairing that led to a collapse in confidence and balkanization of the currency union. The author also discusses emerging markets who had a very different economic experience and one very different from their past histories. It analyses the role of financial buffers built up by many emerging markets as a response to the various EM crisis that were faced in the 90s and how those buffers then allowed for countercyclical monetary and fiscal responses.

The author then moves on to his second section - The Shifts. This section the author analyzes how the world changed to allow for the shocks and vulnerability to shocks to form. He starts first with finance and the migration from private partnerships to public equities. The author spends a good deal of time on the fundamental misalignment of interests in the financial sector in which employees and equity holders have large optionality on success and state support on failure. This tax payer subsidy on capital has led to an inappropriate perception of risk to capital and has led to a financial sector who's goals are out of sync with that of the economy. The author discusses ideas from Minsky in this section. The author then focuses on global imbalances, probably the strongest part of the book in my view. He discusses the imbalances in Europe with Northern European savings funding Southern European investment booms through the interbanking system. He discusses the oil producing countries as well the core super-saver China funding investment booms in the US. The author spends a lot of time focusing on the necessity of global savings to equal global investment and that the supposed prudence of saving nations forces the central banks of the ex-ante trade deficit country to boost investment to maintain domestic employment and economic stability. The author focuses on the excess savings argument put forward by Bernanke a decade ago about the flat US yield curve. This section gives good perspective on global flows and their repercussions to domestic investment schedules.

The author then moves on to the solutions he sees fit given the problems that he perceives to have caused and exacerbated the crisis which remain with us today. He believes we need to fundamentally rethink bank capital and the relationship of the financial system with the central bank. On the more mainstream side there is a discussion of the need for more bank capital and subsequently a capital ratio based on assets rather than risk weighted assets which is an idea the author fundamentally questions. He describes the ridiculous complexity of modern bank legislation vs Glass - Steagall. The author then promotes the more debatable idea of the central bank funding requiring 100% reserves backing deposit with credit growth being fuelled through government investment rather than the financial system money multiplier. These suggestions will have many more skeptics behind them and raise fundamental questions on whether government allocation of resources can be anymore reliable to navigate boom bust than the private sector. The author discusses the need to potentially move away from dollar based reserve system to a global reserve system and the need to balance the unsustainable current account imbalances that still plague the world. The author also discusses policy prescriptions for Europe which remains an unstable and fractured monetary union.

The Shifts and the Shocks provides a comprehensive review of the financial crisis and perspectives on its causes. It discusses how the conditions arose for the causes to propagate and how those same conditions exist today in only partially muted form. Its analysis from the viewpoint of global current accounts is more convincing than the micro-prudential analysis provided, but all aspects of the book should be carefully considered. Definitely a good contribution to the outstanding literature on the crisis and what we still need to do about the causes and aftereffects.
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on November 29, 2014
There are a number of very good reviews, so I will try to brief.
I agree with two points made by a number of reviewers:
1- The book is packed with information and is a really extensive analysis of our existing world economy.
2- It is far from an easy read.

I specially liked the authors : we know too little, we have to experiment and learn approach (I call this the
engineering approach) and his justified claim that there is quiet a bit to change in our existing set up.
Given the enormous power of large banks and large international corporations, some needed changes will
be extremely difficult to legislate and to implement.
Hence the need for an easier to read and understand version of the book to get the support of as large as
possible section of the interested public.
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on January 5, 2015
I like this a lot as I like the author's twist of interpretation or twist of view. He does not take the tack --gees, 2008, how did we go wrong from a stable nice economic system. As if what we had been doing before 2008 --was so very good --oh yes --for wealthy Americans --less than 5% of the earth's population. Wolf rather takes the tack that America's way of doing an economy prior to 2008 --collapsed in the face of a much larger architecture that will embrace the worlds globalization, a different monetary and financial policy. Wolf offers many plans to shift away from the older orthodoxy to a more sustainable management of GDP.
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on December 4, 2014
An excellent overview of the current crisis in fiscal policy-making. Martin Wolf is perhaps the best economic journalist on the planet and goes well beyond journalism in this book. His analysis of the current macroeconomic paralysis and its historical roots is very thorough, his prescriptions point in the right direction, though he is right to be pessimistic about the way forward for Europe. Politicians of all persuasions would be well advised to read this book--but that is where the real problem lies; politics and public opinion have little patience for carefully constructed critiques of public policy.
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on February 4, 2015
An illuminating and very perceptive view of the background to the financial crisis, why it still persists, and what needs to be done to "reset" the system to dramatically reduce systemic risks and the massive collateral effects on all our lives. Wolf is always an excellent writer on economic matters -- not an ideologue, very capable of presenting thoughtful but fairly iconoclastic views, and always useful in developing new perspectives on world events. It's not the easiest of reads, but well worth the investment.
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on January 31, 2015
The author describes facts about the economical markets with an approach around all the world. Therefore he tries to see why those questions could refer to particular events, and he is exposing with attention the methods for avoiding failures. The positive results happen if the thecnical approach is made by economists in according to a better connection between the states. The new terms related to bail-out and assets must have a mathematical formulation, but also good laws.
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