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This Time Is Different: Eight Centuries of Financial Folly
Throughout history, rich and poor countries alike have been lending, borrowing, crashing--and recovering--their way through an extraordinary range of financial crises. Each time, the experts have chimed, "this time is different"--claiming that the old rules of valuation no longer apply and that the new situation bears little similarity to past disasters. With this breakthrough study, leading economists Carmen Reinhart and Kenneth Rogoff definitively prove them wrong. Covering sixty-six countries across five continents, This Time Is Different presents a comprehensive look at the varieties of financial crises, and guides us through eight astonishing centuries of government defaults, banking panics, and inflationary spikes--from medieval currency debasements to today's subprime catastrophe. Carmen Reinhart and Kenneth Rogoff, leading economists whose work has been influential in the policy debate concerning the current financial crisis, provocatively argue that financial combustions are universal rites of passage for emerging and established market nations. The authors draw important lessons from history to show us how much--or how little--we have learned.
Using clear, sharp analysis and comprehensive data, Reinhart and Rogoff document that financial fallouts occur in clusters and strike with surprisingly consistent frequency, duration, and ferocity. They examine the patterns of currency crashes, high and hyperinflation, and government defaults on international and domestic debts--as well as the cycles in housing and equity prices, capital flows, unemployment, and government revenues around these crises. While countries do weather their financial storms, Reinhart and Rogoff prove that short memories make it all too easy for crises to recur.
An important book that will affect policy discussions for a long time to come, This Time Is Different exposes centuries of financial missteps.
Using clear, sharp analysis and comprehensive data, Reinhart and Rogoff document that financial fallouts occur in clusters and strike with surprisingly consistent frequency, duration, and ferocity. They examine the patterns of currency crashes, high and hyperinflation, and government defaults on international and domestic debts--as well as the cycles in housing and equity prices, capital flows, unemployment, and government revenues around these crises. While countries do weather their financial storms, Reinhart and Rogoff prove that short memories make it all too easy for crises to recur.
An important book that will affect policy discussions for a long time to come, This Time Is Different exposes centuries of financial missteps.
460 pages, Hardcover
First published September 11, 2009
972 people are currently reading
12591 people want to read
About the author
Carmen M. Reinhart
24 books57 followersCarmen M. Reinhart is the Minos A. Zombanakis Professor of the International Financial System at Harvard Kennedy School
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Displaying 1 - 30 of 374 reviews
July 16, 2014
OMFG!! This was originally four stars. I was super-impressed by the fact that their conclusions were supported by data underlying the research. Guess what? That was NOT the case! When they finally agreed to release their data sets and other economists tried to replicate their results with their data, they found the following:
You can read more here and here.
We replicate Reinhart and Rogoff and find that coding errors, selective exclusion of available data, and unconventional weighting of summary statistics lead to serious errors that inaccurately represent the relationship between public debt and GDP growth among 20 advanced economies in the post-war period. Our finding is that when properly calculated, the average real GDP growth rate for countries carrying a public-debt-to-GDP ratio of over 90 percent is actually 2.2 percent, not -0.1 percent as published in Reinhart and Rogoff. That is, contrary to RR, average GDP growth at public debt/GDP ratios over 90 percent is not dramatically different than when debt/GDP ratios are lower. We also show how the relationship between public debt and GDP growth varies significantly by time period and country. Overall, the evidence we review contradicts Reinhart and Rogoff’s claim to have identified an important stylized fact, that public debt loads greater than 90 percent of GDP consistently reduce GDP growth.That kind of mistake is the biggest, gravest sin there is in this type of book. For that, I'd put the book under my never-ever-to-read-ever category, except that, damnit, I've already read it. ARRRGGGHHHH!!! I want my time and money back!!!!!
You can read more here and here.
August 11, 2010
This book’s an A- graduate paper glorified into 400+ pages. It has impressive academic rigor, an appendices & reference list as long as the body, and charts galore. Unfortunately it’s written as blandly as Ben Stein speaks. I was jazzed to find this at the library, but let down.
Mercifully, in the preface the authors tell us that the book is organized so you can skip to the last 4 chapters if you‘re interested only with “The Second Great Contraction” which began in the US late 2007. They warn, however, the precursor chapters need to be comprehended so that the current financial crises can be understood in the greater sweep of financial history.
I read all the chapters. I’ll save you time by outlining the most salient points, and then we’ll call it good. These points are underscored throughout the book, but they’re not summarized like I present here.
~For at least 8 centuries, financial crisis have occurred and will continue to occur despite the overwhelming prevailing feeling that ‘This-Time-Is-Different’
~The current global financial crisis had all the warning signs of previous crisis, but the pervasive hubris of American bankers and lawmakers thought that ‘This-Time-Is-Different’
~Governments produce sovereign external debt and internal debt, but all countries, be they emerging markets or mature markets, will default on external debt to a greater degree than internal debt
~Mature, established markets have defaulted as many times as emerging, unstable markets
~Recovery from financial crises (whether from default, inflation, or currency debasement) follow similar trendlines regardless of the country, the size of the crisis, or the time in history
~There were as many global financial crisis in the 1980s & 1990s as there were at any other point in the last 200 years.
~The current ‘Second Great Contraction’ is every bit as severe, extensive, and global as ‘The Great Depression;’ however, the only difference today is a relatively moderate unemployment rate
~Financial crisis are not grouped around political turmoil or warfare, instead they can occur at any time in a country’s maturation
~Six factors insulated policy makers from foreseeing ‘The Second Great Contraction’ (p. 214)
~~~1. The US, with the world’s most reliable system of financial regulation, the most innovative financial system, a strong political system, and the world’s largest and most liquid capital markets, was special. It could withstand huge capital inflows without worry.
~~~2. Rapidly emerging developing economies needed a secure place to invest their funds for diversification purposes
~~~3. Increased global financial integration was deepening global capital markets and allowing countries to go deeper into debt
~~~4. In addition to its other strengths, the US has superior monetary policy institutions and monetary policy makers
~~~5. New financial instruments were allowing many new borrowers to enter mortgage markets
~~~6. All that was happening was just a further deepening of financial globalization thanks to innovation and should not be a great source of worry
~’The Second Great Contraction’ is, up til now, following established trendlines of recovery
But I don’t think so. I think this contraction will prove as intractable as ‘The Great Depression. I believe unemployment will climb over 10%. The Obama administration will tax the richest individuals, but US companies are considered individuals, so in essence this is a tax on all business. Businesses will hoard cash and refuse to hire. To cover municipal and state budget shortfalls, government workers will be laid off by the tens of thousands. Those remaining will face salary freezes. The Boomer demography will increasingly pull money out of markets to support retirement. As mandatory spending, social entitlements will continue to put strain on federal tax revenue. Countries that hold US debt in the trillions will decide whether or not to cash in to produce money for their own financial recoveries. The housing market is several years from the very first tendril upticks in price. Yes, folks, I think we’re in for a long sideways financial floundering in the US. Have a wonderful day.
Mercifully, in the preface the authors tell us that the book is organized so you can skip to the last 4 chapters if you‘re interested only with “The Second Great Contraction” which began in the US late 2007. They warn, however, the precursor chapters need to be comprehended so that the current financial crises can be understood in the greater sweep of financial history.
I read all the chapters. I’ll save you time by outlining the most salient points, and then we’ll call it good. These points are underscored throughout the book, but they’re not summarized like I present here.
~For at least 8 centuries, financial crisis have occurred and will continue to occur despite the overwhelming prevailing feeling that ‘This-Time-Is-Different’
~The current global financial crisis had all the warning signs of previous crisis, but the pervasive hubris of American bankers and lawmakers thought that ‘This-Time-Is-Different’
~Governments produce sovereign external debt and internal debt, but all countries, be they emerging markets or mature markets, will default on external debt to a greater degree than internal debt
~Mature, established markets have defaulted as many times as emerging, unstable markets
~Recovery from financial crises (whether from default, inflation, or currency debasement) follow similar trendlines regardless of the country, the size of the crisis, or the time in history
~There were as many global financial crisis in the 1980s & 1990s as there were at any other point in the last 200 years.
~The current ‘Second Great Contraction’ is every bit as severe, extensive, and global as ‘The Great Depression;’ however, the only difference today is a relatively moderate unemployment rate
~Financial crisis are not grouped around political turmoil or warfare, instead they can occur at any time in a country’s maturation
~Six factors insulated policy makers from foreseeing ‘The Second Great Contraction’ (p. 214)
~~~1. The US, with the world’s most reliable system of financial regulation, the most innovative financial system, a strong political system, and the world’s largest and most liquid capital markets, was special. It could withstand huge capital inflows without worry.
~~~2. Rapidly emerging developing economies needed a secure place to invest their funds for diversification purposes
~~~3. Increased global financial integration was deepening global capital markets and allowing countries to go deeper into debt
~~~4. In addition to its other strengths, the US has superior monetary policy institutions and monetary policy makers
~~~5. New financial instruments were allowing many new borrowers to enter mortgage markets
~~~6. All that was happening was just a further deepening of financial globalization thanks to innovation and should not be a great source of worry
~’The Second Great Contraction’ is, up til now, following established trendlines of recovery
But I don’t think so. I think this contraction will prove as intractable as ‘The Great Depression. I believe unemployment will climb over 10%. The Obama administration will tax the richest individuals, but US companies are considered individuals, so in essence this is a tax on all business. Businesses will hoard cash and refuse to hire. To cover municipal and state budget shortfalls, government workers will be laid off by the tens of thousands. Those remaining will face salary freezes. The Boomer demography will increasingly pull money out of markets to support retirement. As mandatory spending, social entitlements will continue to put strain on federal tax revenue. Countries that hold US debt in the trillions will decide whether or not to cash in to produce money for their own financial recoveries. The housing market is several years from the very first tendril upticks in price. Yes, folks, I think we’re in for a long sideways financial floundering in the US. Have a wonderful day.
June 13, 2014
Another reviewer pointed out that some of the analysis in the book is based on faulty data. Be that as it may, the book still provides generic findings about the financial cycle that are still valid. It is a cogent analysis of hundreds of years of financials crises. Contrary to what the Fed continuously repeats, it is possible to predict financial cycles and this book proves it by examining how bubbles have burst since the invention of money. It provides an excellent explanation of the predictability of the cycle, briefly stated, deregulation allowing looser lending, ballooning lending and leveraging causing a bubble that eventually bursts, and the economic chaos caused afterwards as asset prices (e.g. housing) and other financial instruments are "reset", which is shouldered by the tax payer. It will help to have some academic knowledge of statistical methods to make sense of much of the analysis, although you can easily bypass the analysis and read the conclusions. This book really opened my eyes to the foolishness of banks, businesses, investors and governments with respect to their borrowing. It was also daunting to find significant proof that government books are usually very opaque and consciously hide significant facts about their own economies, which further fuels bubbles and the inevitable bursts. What troubled me the most about what I discovered in this book is that fiat currency and "growth" are a given, namely, this is how the financial global system works and will continue to work. I hope there are other scholars and economists who are looking at finding a financial model that is homeostatic and not geared toward continuous growth.
December 7, 2011
As almost everyone who reviews this book mentions, this is truly an impressive piece of work. The authors, Carmen Reinhart and Kenneth Rogoff, have assembled an amazing history of government defaults, hyperinflations, banking crises, and currency crises for the past 800 years in dozens of countries spanning the globe. They didn't, understandably, compile a narrative of these hundreds of independent events, but coded them into a massive statistical database with which they could compare the relationship of all these financial panics with each other and with numerous other stats like GDP growth and total debt. The result is innumerable new insights and newsworthy conclusions. I'll mention three.
First, while previous researchers, who have focused on emerging market crises, have lavished attention on external defaults of government debt (often to these countries' First world creditors), Reinhart and Rogoff show that defaults on domestically issued debt to these countries' own citizens is almost as common and almost as destructive. They also showed that this domestic debt often constituted over half of all debt issued by these countries, which was often only possible because they repressed financial markets at home and limited investments (at least in the post World War II period. The authors also show that pre-World War II and more recently issued domestic debt had market-level interest rates). In the future, researchers will have to pay more attention to this vital aspect of government finance.
Second, the authors showed that the ratio of debt and deficit to GDP for sovereign defaulters could be shockingly low, often as low as 20%, and the risk of default increased drastically around the very low number of 35% of GDP. This should give no comfort to those who think Italy is safe with "only" a 115% debt to GDP ratio and low deficits.
Third, they also show that around the world the governmental response to financial panics is remarkably similar, in both emerging markets and in developed countries. After a crisis, on average government debt increases by 86%, no matter where the crisis took place, and most of this is not the cost of "bailouts" but is due to decreased tax revenue and increased expenditures. Everywhere they show, governments are subject to similar constraints and similar outcomes after a crisis.
These points barely scratch the surface of the authors work. The book is certainly a monument to empirical insights, but I don't want to oversell it. First, perhaps as befits an empirical economics text, this book is almost exclusively composed of graphs, tables, and the textual interpretation of both of those. These do provide an almost inexhaustible source of new findings and hypotheses, but if that's not your bag don't go near this book (though the the authors do make a real effort to make the results comprehensible even to an economic layperson). Also, much of this statistical work is barely interpreted but often just presented in numerical form. Conclusions drawn from it can seem a little hasty. Also, although the authors emphasize the "eight centuries of financial folly," the book overwhelmingly focuses on the past 200 years, and especially the last 100, so its not quite as comprehensive as some have said. This is due more to the nature of the evidence than the authors' efforts, but it is an important qualifier.
Ultimately, these quibbles can be only that. This is undoubtedly one of the most important works of economic history of the past decade, and will and should be read by anyone who cares about the impact of global finance on the world and its people.
First, while previous researchers, who have focused on emerging market crises, have lavished attention on external defaults of government debt (often to these countries' First world creditors), Reinhart and Rogoff show that defaults on domestically issued debt to these countries' own citizens is almost as common and almost as destructive. They also showed that this domestic debt often constituted over half of all debt issued by these countries, which was often only possible because they repressed financial markets at home and limited investments (at least in the post World War II period. The authors also show that pre-World War II and more recently issued domestic debt had market-level interest rates). In the future, researchers will have to pay more attention to this vital aspect of government finance.
Second, the authors showed that the ratio of debt and deficit to GDP for sovereign defaulters could be shockingly low, often as low as 20%, and the risk of default increased drastically around the very low number of 35% of GDP. This should give no comfort to those who think Italy is safe with "only" a 115% debt to GDP ratio and low deficits.
Third, they also show that around the world the governmental response to financial panics is remarkably similar, in both emerging markets and in developed countries. After a crisis, on average government debt increases by 86%, no matter where the crisis took place, and most of this is not the cost of "bailouts" but is due to decreased tax revenue and increased expenditures. Everywhere they show, governments are subject to similar constraints and similar outcomes after a crisis.
These points barely scratch the surface of the authors work. The book is certainly a monument to empirical insights, but I don't want to oversell it. First, perhaps as befits an empirical economics text, this book is almost exclusively composed of graphs, tables, and the textual interpretation of both of those. These do provide an almost inexhaustible source of new findings and hypotheses, but if that's not your bag don't go near this book (though the the authors do make a real effort to make the results comprehensible even to an economic layperson). Also, much of this statistical work is barely interpreted but often just presented in numerical form. Conclusions drawn from it can seem a little hasty. Also, although the authors emphasize the "eight centuries of financial folly," the book overwhelmingly focuses on the past 200 years, and especially the last 100, so its not quite as comprehensive as some have said. This is due more to the nature of the evidence than the authors' efforts, but it is an important qualifier.
Ultimately, these quibbles can be only that. This is undoubtedly one of the most important works of economic history of the past decade, and will and should be read by anyone who cares about the impact of global finance on the world and its people.
November 3, 2017
Initial impressions: well-explained book. Was considering giving it 4 stars (or higher).
Due diligence: 1 star on account of irregularities in the analysis that appear to be selectively biased. Data matters--this study hasn't replicated well, and while we might be able to give the authors the benefit of the doubt, it is worthwhile to highlight that this due diligence has happened well before now and yet many still give this book 4 or 5 stars without knowledge that a crucial argument of the text has been found to be empty.
More here: https://www.economist.com/news/financ...
Lots more here: https://www.google.com/search?ei=dKP8...
Due diligence: 1 star on account of irregularities in the analysis that appear to be selectively biased. Data matters--this study hasn't replicated well, and while we might be able to give the authors the benefit of the doubt, it is worthwhile to highlight that this due diligence has happened well before now and yet many still give this book 4 or 5 stars without knowledge that a crucial argument of the text has been found to be empty.
More here: https://www.economist.com/news/financ...
Lots more here: https://www.google.com/search?ei=dKP8...
March 30, 2010
This book is the current darling of the financial set, and I understand it has become required reading by economists, bankers, policy-makers and the more thoughtful financial pundits alike. That’s a rare feat. The book assembles a vast data set on financial crises, from many countries both developed and emerging, and reduces it to a mass of charts and graphs along with text. The title, as you might guess, refers to the fact that “this time is different” always turn out to be famous last words – over and over and over again. Hope triumphs over experience.
That said, the size of this book deterred me, as did the fact that it was already overdue at the library by the time I started it. So I only read a couple of chapters on the latest Great Recession, rather than eight centuries’ worth of folly. The follies of a single century seemed plenty enough for me.
The key observations that interested me, in putting the current financial crisis in perspective, were the following data points about banking crises (from the last 100 years or so). Note that a banking crisis, like the one we endured in 2007-2009 (and which perhaps is not done yet) tends to be the severest form of economic crisis.
• House prices drop an average of 35% and take 6 years to stabilize
• GDP drops roughly 10% and takes 4.5 years to recover to its pre-crisis level (though it took 10 years in the US and 12 years in Canada during the Great Depression)
• Unemployment rises by 7% points above the norm, and only improves after nearly 5 years
• Government debt nearly doubles, rising an average of 86%
• Stock prices drop 56%, but recover much more quickly than housing prices or unemployment – in about 3.5 years
All in all, it looks as if the Great Recession (US version) we are currently enduring may be following pretty much the path outlined by these historical averages. Ouch!
That said, the size of this book deterred me, as did the fact that it was already overdue at the library by the time I started it. So I only read a couple of chapters on the latest Great Recession, rather than eight centuries’ worth of folly. The follies of a single century seemed plenty enough for me.
The key observations that interested me, in putting the current financial crisis in perspective, were the following data points about banking crises (from the last 100 years or so). Note that a banking crisis, like the one we endured in 2007-2009 (and which perhaps is not done yet) tends to be the severest form of economic crisis.
• House prices drop an average of 35% and take 6 years to stabilize
• GDP drops roughly 10% and takes 4.5 years to recover to its pre-crisis level (though it took 10 years in the US and 12 years in Canada during the Great Depression)
• Unemployment rises by 7% points above the norm, and only improves after nearly 5 years
• Government debt nearly doubles, rising an average of 86%
• Stock prices drop 56%, but recover much more quickly than housing prices or unemployment – in about 3.5 years
All in all, it looks as if the Great Recession (US version) we are currently enduring may be following pretty much the path outlined by these historical averages. Ouch!
August 21, 2011
It might be unfair for me to rate this book (giving it 2 stars). My rating is subjective. This isn't the book I was looking for, and that isn't the authors' fault. So please view my rating with that in mind.
This book is clearly aimed at an academic or professional economic audience. The book is chock full of tables and graphs. The amount and quality of data is impressive.
As for the writing style, Alan Greenspan would be proud. Here is a typical sentence (pp 192-3): "Interpreting the (unconditional) probability of high inflation used in figure 12.5 as a rough measure of the credibility of a monetary policy gives us some insights as to why achieving low inflation is generally not a sufficient condition for a rapid decrease in the degree of dollarization; namely, a country with a poor inflationary history will need to maintain inflation at low levels for a long period before it can significantly reduce the probability of another inflationary bout." If that type of presentation appeals to you, then by all means put this book on your "to read" list.
I read the entire book, although I admit to skimming some sections. I really wish This Time Is Different had a Cliff Notes version. I would have gotten a lot more from a 25 to 50 page condensation. As it is, the huge amount of detail made it difficult for me as an intelligent but casual reader to fully appreciate the main points. I think the authors have a compelling story to tell. But I think most readers in the general public, even those motivated to read an in-depth book on this topic, are going to have a difficult time here.
This book is clearly aimed at an academic or professional economic audience. The book is chock full of tables and graphs. The amount and quality of data is impressive.
As for the writing style, Alan Greenspan would be proud. Here is a typical sentence (pp 192-3): "Interpreting the (unconditional) probability of high inflation used in figure 12.5 as a rough measure of the credibility of a monetary policy gives us some insights as to why achieving low inflation is generally not a sufficient condition for a rapid decrease in the degree of dollarization; namely, a country with a poor inflationary history will need to maintain inflation at low levels for a long period before it can significantly reduce the probability of another inflationary bout." If that type of presentation appeals to you, then by all means put this book on your "to read" list.
I read the entire book, although I admit to skimming some sections. I really wish This Time Is Different had a Cliff Notes version. I would have gotten a lot more from a 25 to 50 page condensation. As it is, the huge amount of detail made it difficult for me as an intelligent but casual reader to fully appreciate the main points. I think the authors have a compelling story to tell. But I think most readers in the general public, even those motivated to read an in-depth book on this topic, are going to have a difficult time here.
June 22, 2013
I was about to say unratable. Not because this book is a classic, nor because it is too scholarly for me to apprehend. The reason is that I feel like it is too much like a draft. The book is full of graphs, boxes, tables, albeit with quite detailed descriptions and brief explanations. Put in another way, I feel like it is a preliminary analysis, where you throw out all raw materials you have, graphs, summaries, descriptives, and only with a very rough idea of what you are going to say. This time is different is like that. It does not, in my opinion, feature a complete, coherent, and convincing story enough.
The most striking claim that these authors make is that they will prove how this time, the financial crisis in 2007 - or the "Great Second Contraction" as they name it, is so not different from many crises in the past. They plann to do this by collecting a mass amount of data, notably for the last "eight centuries" to prove that we humans so often ignore the past, too confident of our ability of understanding the present because of our so-called advanced technologies, our superior development.
I like the idea so very much. Economics tends to forget about history so much. The main reason is, obviously, the availability of data, which is the central part of the "scientific approach" with rigorous statistical calculations, mathemetics modeling and so on.
Yet, sadly, what these authors tried to do is still very much surrounding this "scientific method." This is, I think, quite impossible. At best, its data from 1800s onward are acceptable, but for the remaining 6 centuries, I am afraid, the data can only be employed in descriptive, comparative, or case study method. These data, simply by nature and no one's fault, are in many cases not comparable, and just not useable in statistical studies. Such boasting of "eight centuries" is very misleading. Even with the data of the last two centuries, it is problematic to tackle. Yes, these authors are able to show some interesting trends, point out few curious patterns, validly call for attention in future research, but not much more. With such very few variables, these data can only be a sort of illustration, not really persuading me.
The book discusses several theories about crises in general, but makes no attempt to develop or stick to one. It is perhaps beyond its scope, as it claims itself. But unfortunately, my definition of books is that you have at least a theory, a story, an idea well-developed to tell, not a set of proofs, for an uncertain something. The only argument "This time is not different" is weakly supported by, again, descriptive statistics. Ironically, there are many times these authors emphasize again and again the "uniqueness" of the 2007 crisis - the only one with global scope in the post WWII period, only comparable but not fully so to the Great Depression. I was like, huh? Anyway, I think just by telling some historical accounts, or comparative analysis can be more effective than this. This book is perhaps useful for reference. It is like, I don't know, another data source?
And yet, another blow is coming, as a data source, it is not reliable. As this NY Times article written by two professors sadly annoucnes, there is a definitely serious problem in data use. As a result, I could only give 1 star.
What is left is: nothing. I feel so cheated. Nevertheless, the book does discuss some theories, though very lightly. Therefore, it might serve as an ok introduction to the issue of crises: sovereign debt, domestic debt, inflation, currency crash. It is quite a short and easy to read book, so perhaps if you have much time, you can have a look.
The most striking claim that these authors make is that they will prove how this time, the financial crisis in 2007 - or the "Great Second Contraction" as they name it, is so not different from many crises in the past. They plann to do this by collecting a mass amount of data, notably for the last "eight centuries" to prove that we humans so often ignore the past, too confident of our ability of understanding the present because of our so-called advanced technologies, our superior development.
I like the idea so very much. Economics tends to forget about history so much. The main reason is, obviously, the availability of data, which is the central part of the "scientific approach" with rigorous statistical calculations, mathemetics modeling and so on.
Yet, sadly, what these authors tried to do is still very much surrounding this "scientific method." This is, I think, quite impossible. At best, its data from 1800s onward are acceptable, but for the remaining 6 centuries, I am afraid, the data can only be employed in descriptive, comparative, or case study method. These data, simply by nature and no one's fault, are in many cases not comparable, and just not useable in statistical studies. Such boasting of "eight centuries" is very misleading. Even with the data of the last two centuries, it is problematic to tackle. Yes, these authors are able to show some interesting trends, point out few curious patterns, validly call for attention in future research, but not much more. With such very few variables, these data can only be a sort of illustration, not really persuading me.
The book discusses several theories about crises in general, but makes no attempt to develop or stick to one. It is perhaps beyond its scope, as it claims itself. But unfortunately, my definition of books is that you have at least a theory, a story, an idea well-developed to tell, not a set of proofs, for an uncertain something. The only argument "This time is not different" is weakly supported by, again, descriptive statistics. Ironically, there are many times these authors emphasize again and again the "uniqueness" of the 2007 crisis - the only one with global scope in the post WWII period, only comparable but not fully so to the Great Depression. I was like, huh? Anyway, I think just by telling some historical accounts, or comparative analysis can be more effective than this. This book is perhaps useful for reference. It is like, I don't know, another data source?
And yet, another blow is coming, as a data source, it is not reliable. As this NY Times article written by two professors sadly annoucnes, there is a definitely serious problem in data use. As a result, I could only give 1 star.
What is left is: nothing. I feel so cheated. Nevertheless, the book does discuss some theories, though very lightly. Therefore, it might serve as an ok introduction to the issue of crises: sovereign debt, domestic debt, inflation, currency crash. It is quite a short and easy to read book, so perhaps if you have much time, you can have a look.
September 24, 2023
I originally (2017 reading) gave this seemingly impressive bit of research and analysis three reluctant stars. I didn't like the fundamental interpretation of the data Reinhart and Rogoff had studied, but they had compiled what I thought to be a useful dataset with interesting anecdotes of historical instances of mass psychoses in the rush to GET RICH QUICK. In the spirit of Galbraith, I enjoyed reading about several acute instances of financial folly, a few for the first time.
Inevitably, these "crashes" involved, just like our own recent banker-engineered crisis, a small number of crooks deceiving and exploiting masses of naive investors (i.e. their clients, pensioners/retirees, and others dependent on public support), up to a point when it fell apart and the crooks had to move onto the next big scheme. Said crooks may sometimes lose money alongside their victims, but, aside from the occasional patsy, they ALWAYS escape any kind of justice for deliberative fraud. There is no punishment for financial malpractice unless you confess to it (Madoff's second mistake and the only reason he went to prison). They are the social descendants of cattle rustlers, claim jumpers, and other successful robber barons of legend.
Anyway.
As I'm not a proper economist, only playing at one for work, I have a disproportionally large chip on my shoulder when it comes to shoddy research conducted by the pros. Even more so for outright fraudulent work, of course. I was not convinced with R&R's conservative conclusions, but remained reluctantly impressed with the work as noted.
Reinhart and Rogoff concluded (not posited, this is ECON) that, as the ratio of government debt to GDP (that most garbage of all the garbage econ stats) increased above 90%, the economy was much more likely to "crash" (i.e. shrink). (90% being a not-uncommon level as Western "democracies", China and Japan have semi-Keynes'ed their way out of negative growth in a doomed attempt to rescue neoliberal market Capitalism)
High government indebtedness leads to a smaller economy. OK. That's intuitive. If the public are paying for adequate institutions providing education, health care, safety services, utilities, etc., then there is no incentive for individuals to spend additional money on these things, and GDP, that old liar, is not inflated by superfluous spending. Good. Efficient. Fair-er.
But, R&R were writing a compelling story about crashes and therefore had to fudge things further with their qualitative analysis: not only does GDP shrink, but all the speculators lose money. OK. Also good. Speculation is risky. If speculators never lose money because the more prudent public keep bailing them out, then speculation becomes the norm. This is why the crooks always have something cooking - BTC, AI, Fintech, Biotech, CDOs, MBS, BRICKS, yadda yadda. The next big money maker, trying to attract clients/victims. This was my conclusion.
R&R thought their iron law meant something else - that government just shouldn't be spending money on good institutions that rich and poor alike would enjoy. It's better for GDP if we allow wealthy individuals, behind the legal protections of corporations, to make a profitable market for those public goods. Then, we have the neoliberal wet dream of businesses "competing" to provide public goods AND making shedloads of money doing it as the masses get to shop! Woo hoo.
Anyway.
I then turned to the internet to learn more...
Aha. Reinhart and Rogoff had had been outed in 2013 as deliberate frauds. They faked a bunch of their data and their model was deeply biased to support their conclusion. R&R's new law of government indebtedness is revealed as bullshit.
Harvard was deeply embarrassed; Reinhart and Rogoff were disgraced and fired. ;->
No. The book remains in print and is used in Finance courses, ten years later. Politicians and manipulative policy advisors still refer to it in support of deregulation of essential services and austerity measures that literally kill people and cause lifelong trauma for survivors. Reinhart and Rogoff, despite their gross professional academic fraud, still have their jobs with Harvard. Harvard has more power than any mythical god. There is no justice.
Inevitably, these "crashes" involved, just like our own recent banker-engineered crisis, a small number of crooks deceiving and exploiting masses of naive investors (i.e. their clients, pensioners/retirees, and others dependent on public support), up to a point when it fell apart and the crooks had to move onto the next big scheme. Said crooks may sometimes lose money alongside their victims, but, aside from the occasional patsy, they ALWAYS escape any kind of justice for deliberative fraud. There is no punishment for financial malpractice unless you confess to it (Madoff's second mistake and the only reason he went to prison). They are the social descendants of cattle rustlers, claim jumpers, and other successful robber barons of legend.
Anyway.
As I'm not a proper economist, only playing at one for work, I have a disproportionally large chip on my shoulder when it comes to shoddy research conducted by the pros. Even more so for outright fraudulent work, of course. I was not convinced with R&R's conservative conclusions, but remained reluctantly impressed with the work as noted.
Reinhart and Rogoff concluded (not posited, this is ECON) that, as the ratio of government debt to GDP (that most garbage of all the garbage econ stats) increased above 90%, the economy was much more likely to "crash" (i.e. shrink). (90% being a not-uncommon level as Western "democracies", China and Japan have semi-Keynes'ed their way out of negative growth in a doomed attempt to rescue neoliberal market Capitalism)
High government indebtedness leads to a smaller economy. OK. That's intuitive. If the public are paying for adequate institutions providing education, health care, safety services, utilities, etc., then there is no incentive for individuals to spend additional money on these things, and GDP, that old liar, is not inflated by superfluous spending. Good. Efficient. Fair-er.
But, R&R were writing a compelling story about crashes and therefore had to fudge things further with their qualitative analysis: not only does GDP shrink, but all the speculators lose money. OK. Also good. Speculation is risky. If speculators never lose money because the more prudent public keep bailing them out, then speculation becomes the norm. This is why the crooks always have something cooking - BTC, AI, Fintech, Biotech, CDOs, MBS, BRICKS, yadda yadda. The next big money maker, trying to attract clients/victims. This was my conclusion.
R&R thought their iron law meant something else - that government just shouldn't be spending money on good institutions that rich and poor alike would enjoy. It's better for GDP if we allow wealthy individuals, behind the legal protections of corporations, to make a profitable market for those public goods. Then, we have the neoliberal wet dream of businesses "competing" to provide public goods AND making shedloads of money doing it as the masses get to shop! Woo hoo.
Anyway.
I then turned to the internet to learn more...
Aha. Reinhart and Rogoff had had been outed in 2013 as deliberate frauds. They faked a bunch of their data and their model was deeply biased to support their conclusion. R&R's new law of government indebtedness is revealed as bullshit.
Harvard was deeply embarrassed; Reinhart and Rogoff were disgraced and fired. ;->
No. The book remains in print and is used in Finance courses, ten years later. Politicians and manipulative policy advisors still refer to it in support of deregulation of essential services and austerity measures that literally kill people and cause lifelong trauma for survivors. Reinhart and Rogoff, despite their gross professional academic fraud, still have their jobs with Harvard. Harvard has more power than any mythical god. There is no justice.
December 5, 2009
The thesis of this book is important, but I cannot say it is worth actually "reading" very closely -- The gist can be extracted in a short time -- and the charts/data scanned. Only time will tell whether the authors' fears are to be realized...
There's an old market adage that bears almost ALWAYS have the better argument; but that bulls, when the day is done, are most often right.... Of course, being bullish today is a relative concept. As Doug Henwood says, "flat is the new up".
This book, to my surprise - even the historical chapters -- is very dry (hence the four-stars). But it is data-driven and important. The authors study a large assortment of examples of financial crisis, extending back to the 14th cen., and covering external default (when a country defaults on debt denominated in the currency of a foreign nation, and held under the jurisdiction of that foreign nation); domestic debt default (issued and regulated in the home currency/laws); banking panics; inflation.
One of their most important findings is that there has been very little study in the literature of domestic default, but that such default (either de jure or de facto) is far more common than many believe -- and that it is, in fact, the massive accumulation of domestic debt (debt issued in one's one currency, largley -- though not exclusively -- to one's own citizens) that is the hidden cause behind many instances of external default, of banking panics, and -- most critically - of inflation (high inflation, defined as 20% or more per annum, and hyper-inflation of 40% or more per annum). The authors show that it is almost impossible for a nation choking on domestic debt to simply "grow" its way out -- the only instance they've found of such benign resolution being Swaziland - and that they will almost always resort to inflation.
Obviously, in studying the modern record, the authors have their eyes firmly on the situation of the Western nations in 2009. The last third of the book deals at some length with Subprime Crisis -- the middle third (where I am now) with banking panics and inflation.
The authors cite approvingly Niall Ferguson's Ascent of Money, and seem close in ways to the credit bubble analysis of Doug Noland. But I am not sure that they have their political biases as well.
(A lot of modern scholarship -- and this is especially (though not exclusively) true in the social sciences -- has a peculiarly stilted quality to it. This book, which is a collaborative effort, suffers from some of that in the beginning -- the first four chapters deal with theory and method and have value, but not much pizzaz. The reader will want to get through that material quickly.
The historical material starts in ch. 5 -- and it looks great. I'll wait till I'm a bit further in before rating it, though.)
(This book comes to me highly recommended)
There's an old market adage that bears almost ALWAYS have the better argument; but that bulls, when the day is done, are most often right.... Of course, being bullish today is a relative concept. As Doug Henwood says, "flat is the new up".
This book, to my surprise - even the historical chapters -- is very dry (hence the four-stars). But it is data-driven and important. The authors study a large assortment of examples of financial crisis, extending back to the 14th cen., and covering external default (when a country defaults on debt denominated in the currency of a foreign nation, and held under the jurisdiction of that foreign nation); domestic debt default (issued and regulated in the home currency/laws); banking panics; inflation.
One of their most important findings is that there has been very little study in the literature of domestic default, but that such default (either de jure or de facto) is far more common than many believe -- and that it is, in fact, the massive accumulation of domestic debt (debt issued in one's one currency, largley -- though not exclusively -- to one's own citizens) that is the hidden cause behind many instances of external default, of banking panics, and -- most critically - of inflation (high inflation, defined as 20% or more per annum, and hyper-inflation of 40% or more per annum). The authors show that it is almost impossible for a nation choking on domestic debt to simply "grow" its way out -- the only instance they've found of such benign resolution being Swaziland - and that they will almost always resort to inflation.
Obviously, in studying the modern record, the authors have their eyes firmly on the situation of the Western nations in 2009. The last third of the book deals at some length with Subprime Crisis -- the middle third (where I am now) with banking panics and inflation.
The authors cite approvingly Niall Ferguson's Ascent of Money, and seem close in ways to the credit bubble analysis of Doug Noland. But I am not sure that they have their political biases as well.
(A lot of modern scholarship -- and this is especially (though not exclusively) true in the social sciences -- has a peculiarly stilted quality to it. This book, which is a collaborative effort, suffers from some of that in the beginning -- the first four chapters deal with theory and method and have value, but not much pizzaz. The reader will want to get through that material quickly.
The historical material starts in ch. 5 -- and it looks great. I'll wait till I'm a bit further in before rating it, though.)
(This book comes to me highly recommended)
August 10, 2015
Unfortunately, this book is nearly unreadable. Oh, I’m sure it’s readable if you’re a professional or academic economist. But for the casual reader, even one with a pretty good background knowledge of economics, it’s mostly an endless series of highly technical, loosely related charts, graphs and conclusions. All this to agree with the writer of Ecclesiastes, 2500 years ago, that “The thing that hath been, it is that which shall be; and that which is done is that which shall be done: and there is no new thing under the sun.”
I am certain that if you a policymaker, a banker, or an emerging markets investor, it is very much worth your time to read this book. The authors are erudite and seem to have compiled a peerless set of data on which to base their analysis and conclusion, much of which is exhaustively summarized in the appendices. So there is an audience for this book, but if you want a readable book with the same conclusion, and don’t need the volumes of data, try classics like “Devil Take The Hindmost” and “Manias, Panics and Crashes.” Or, for something less laser-focused on the financial markets and trading, “Extraordinary Popular Delusions and The Madness of Crowds” or even “The Crowd: A Study of the Popular Mind” (though that last one is a pretty hard slog, too).
I am certain that if you a policymaker, a banker, or an emerging markets investor, it is very much worth your time to read this book. The authors are erudite and seem to have compiled a peerless set of data on which to base their analysis and conclusion, much of which is exhaustively summarized in the appendices. So there is an audience for this book, but if you want a readable book with the same conclusion, and don’t need the volumes of data, try classics like “Devil Take The Hindmost” and “Manias, Panics and Crashes.” Or, for something less laser-focused on the financial markets and trading, “Extraordinary Popular Delusions and The Madness of Crowds” or even “The Crowd: A Study of the Popular Mind” (though that last one is a pretty hard slog, too).
October 26, 2015
This book could have been a really interesting history and discussion of previous financial crises and their causes. Instead, it gets really into charts, tables, and data, but does not do a very good job at summarizing their overall significance ---- it reads like the graduate dissertations you find in college libraries -- or in academic journals that almost no one bothers to read.
That, by itself, is not the major problem. The major problem with this book is that, after wading through all this wonkish verbiage, the authors do not offer clear, understandable solutions for how to prevent from repeating the mistakes of the past. They do call for greater government clarity on their finances and debt, but, aside from that, they do little else, other than to condemn present day leaders for repeating past mistakes, but never providing solutions on how they should accomplish that.
That, by itself, is not the major problem. The major problem with this book is that, after wading through all this wonkish verbiage, the authors do not offer clear, understandable solutions for how to prevent from repeating the mistakes of the past. They do call for greater government clarity on their finances and debt, but, aside from that, they do little else, other than to condemn present day leaders for repeating past mistakes, but never providing solutions on how they should accomplish that.
April 19, 2019
I proudly finished this in 2 days! which is a highly detailed time series data analysis of defaults, debt crisis and our ignorance of reemerging the crises. as in the book says
“The lesson of history, then, is that even as institutions and policy makers improve, there will always be a temptation to stretch the limits.”
Yet the ability of governments and investors to delude themselves, giving rise to periodic bouts of euphoria that usually end in tears, seems to have remained a constant.
“The lesson of history, then, is that even as institutions and policy makers improve, there will always be a temptation to stretch the limits.”
Yet the ability of governments and investors to delude themselves, giving rise to periodic bouts of euphoria that usually end in tears, seems to have remained a constant.
August 22, 2020
This was a very good book about sovereign debt and the power that governments have in controlling interest rates and financial repression policies to ensure that citizens' savings end up on the Government's balance sheet under the Debts header.
Domestic debt is a major part of this book. I had absolutely no idea what it meant before, and now I think I understand it enough to actually look at Budget statements from governments and understand what is going on and how "public indebtedness" is really calculated.
*Interesting:* Seigniorage profits from reducing silver content in coins and it's modern day equivalent of printing more fiat currency to bring down the value of money and default on domestic debt
Domestic debt is a major part of this book. I had absolutely no idea what it meant before, and now I think I understand it enough to actually look at Budget statements from governments and understand what is going on and how "public indebtedness" is really calculated.
*Interesting:* Seigniorage profits from reducing silver content in coins and it's modern day equivalent of printing more fiat currency to bring down the value of money and default on domestic debt
July 23, 2022
If you are looking for applicable investing insight, and not an academic discussion (or in some cases simply laying out correlative data), this is hidden in a handful of pages (mainly chapter 12-13 onwards). There’s some useful data on average impact from prior banking crises etc.
Neutral rating as the book may have greater relevance to academics / economists (?)
Neutral rating as the book may have greater relevance to academics / economists (?)
June 23, 2011
Well, this is one of the few books I tried to finish but couldn't.
First I downloaded it from Audible.com. However, this book has a ton of graphs and tables. The reader of the audiobook frequently makes statements like "As can be seen from table 2.2..." The listener is unable to "see" table 2.2 as no tables or illustrations are provided either with the download or on the internet. So that's frustrating. Then I checked the book out in hardcopy from the library so as to be able to see the tables, etc. Reading the text is not much better than listening to it being read. Very dry, academic prose. The last 150 pages of the 429 page book consist of references, tables, and notes. Despite the catchy title, the work primarily deals with a database the authors have constructed from meticulous research of arcane economic data. They have accumulated data on the yearly average price of wool from now back to the 13th century. They have details of every time in the last 200 years that a third world bank was late on a payment to its lenders. Very admirable, but hardly entertaining, or even interesting. They seem to spend more words talking about their database than about any conclusions that might be drawn from studying their database.
Of course, it's great that such works exist, but I sort of resent them trying to pass it off as anything but a textbook. I suppose Princeton University Press figured that they could jazz up the title a little and sell it at Barnes and Nobles instead of the campus book store, The title, cover art, and cover notes would lead you to believe that this is a work accessible to the general reader. But don't be fooled: it's a deadly dull academic tome trying to pass as popular nonfiction.
First I downloaded it from Audible.com. However, this book has a ton of graphs and tables. The reader of the audiobook frequently makes statements like "As can be seen from table 2.2..." The listener is unable to "see" table 2.2 as no tables or illustrations are provided either with the download or on the internet. So that's frustrating. Then I checked the book out in hardcopy from the library so as to be able to see the tables, etc. Reading the text is not much better than listening to it being read. Very dry, academic prose. The last 150 pages of the 429 page book consist of references, tables, and notes. Despite the catchy title, the work primarily deals with a database the authors have constructed from meticulous research of arcane economic data. They have accumulated data on the yearly average price of wool from now back to the 13th century. They have details of every time in the last 200 years that a third world bank was late on a payment to its lenders. Very admirable, but hardly entertaining, or even interesting. They seem to spend more words talking about their database than about any conclusions that might be drawn from studying their database.
Of course, it's great that such works exist, but I sort of resent them trying to pass it off as anything but a textbook. I suppose Princeton University Press figured that they could jazz up the title a little and sell it at Barnes and Nobles instead of the campus book store, The title, cover art, and cover notes would lead you to believe that this is a work accessible to the general reader. But don't be fooled: it's a deadly dull academic tome trying to pass as popular nonfiction.
May 10, 2010
Don't curl up by the fire intending to read this book.
For most people reading this book would be a real slog. It is dense and full of charts and tables. However, picking it up, opening it to an interesting looking chapter and examining the tables and charts can be very engaging. If you get bogged down, don't give up. Pick it up from time to time and read a section. You'll learn a lot about finance.
While I did not read the whole book I got some good pointers from it. One is that there was never a real Golden Age where monetary policy and finance worked well for everyone for any extended period of time. (e.g. creation of the Federal Reserve is not the source of problems in the US.) A more important one is that you really need to watch out for yourself. Other people poking through different chapters will get different insights.
For most people reading this book would be a real slog. It is dense and full of charts and tables. However, picking it up, opening it to an interesting looking chapter and examining the tables and charts can be very engaging. If you get bogged down, don't give up. Pick it up from time to time and read a section. You'll learn a lot about finance.
While I did not read the whole book I got some good pointers from it. One is that there was never a real Golden Age where monetary policy and finance worked well for everyone for any extended period of time. (e.g. creation of the Federal Reserve is not the source of problems in the US.) A more important one is that you really need to watch out for yourself. Other people poking through different chapters will get different insights.
March 28, 2016
Very readable for the most part, and the graphs interspersed throughout serve well to reinforce the text (the combination is sometimes overkill, but at least drives the authors' arguments home). If read straight through, feels a little disjoint at times as some sections were deliberately written to be self-contained, and these do not always flow cleanly with earlier chapters. A useful historical survey and reference all around though.
May 9, 2011
A deeply researched analysis of just why this financial crisis and resulting recession have been so painful and protracted. Kenneth Rogoff is brilliant and teamed with carmen Reinhart, they present a highly readable, well thought out assessment -- one I suspect will become the touchstone for future scholars to base their research into this time of turbulance upon for years to come.
October 28, 2016
I should have read this a while ago, but I was a little busy in 2009. The data is formidably comprehensive.
April 22, 2022
Overview:
Before a financial crisis, there is often a perception that this time is different. A belief that crises are a part of the past, or only other places suffer them. This happens to be a very costly piece of investment advice. The claim partly stems from improved evaluation techniques, that previous rules of valuation are not applicable, which is heavily backed up by rigorous analysis. Along with thinking that the lessons from prior failures have been learned, and that the boom being experienced has appropriate fundamentals and is built on good policy. This is one similar feature that occurs before a crisis. Another similar feature between various crises is excessive debt accumulation. Each crisis might appear different, but they have many similar features. Understanding these similar features, means being able to reduce the risk of future crisis and to better handle each crisis. The authors utilize various quantitative methods to show the general trends within crises.
Financial crises have been around since the development of money and financial markets. Highly indebted institutions, whether public or private, can keep credit rolling until confidence in them has collapsed, and lenders disappear, creating a crisis. During a crisis, investors withdraw from risk taking generally, rather than specific sources. Even countries face that problem as their credit can be taken away if other countries with similar issues are having problems.
Fickle expectations that destabilize banks, also apply to governments especially when they are borrowing external debt. It is normal for emerging markets to have sovereign external debt defaults. Development of their social, political, and economic aspects into becoming an advanced market can take a while, but will graduate away from defaults. Governments have found ways to rid themselves of serial default on sovereign debt or very high inflation. But serial banking crisis still remain.
Normal function of a bank is to borrow short term, and lend long term. A crisis can occur if they cannot fund their short-term obligation, with the illiquid long-term assets. Some governments borrow with short term maturities because of the benefit of lower interest rate. The problem of relying on short term borrowing is that confidence can change, and remove a source of funding.
Although there are similarities between private and public financial crisis, there are differences as well. Governments do not default in the same manner that private institutions do. Governments do not cease to exist with a default, and defaulting requires more considerations than economic and financial cost-benefit analysis as social and political factors needs to be considered.
Private institutions and individuals have clearly defined rights, such as assets being taken over when undergoing bankruptcy. Creditors do not necessarily have that option with governments, even if on paper they do. For sovereign nations, it is not just ability to repay debt that matters, but also willingness.
Caveats?
This is primarily a quantitate account of crises. Looking at statistical trends rather than detailed descriptions of various crisis. There are very brief descriptions of various crises. The general explanations of various aspects of a crisis are short, and might need more research to understand the problems. A basic understanding of finance and statistics would help in reading the book.
As the book looks at trends in data, what the authors recognize is the need for better data. Much of the data was hard to obtain, contains suspect data, and lot of missing data. Improving the quality of the data, can improve an understanding of particular trends within the data.
Before a financial crisis, there is often a perception that this time is different. A belief that crises are a part of the past, or only other places suffer them. This happens to be a very costly piece of investment advice. The claim partly stems from improved evaluation techniques, that previous rules of valuation are not applicable, which is heavily backed up by rigorous analysis. Along with thinking that the lessons from prior failures have been learned, and that the boom being experienced has appropriate fundamentals and is built on good policy. This is one similar feature that occurs before a crisis. Another similar feature between various crises is excessive debt accumulation. Each crisis might appear different, but they have many similar features. Understanding these similar features, means being able to reduce the risk of future crisis and to better handle each crisis. The authors utilize various quantitative methods to show the general trends within crises.
Financial crises have been around since the development of money and financial markets. Highly indebted institutions, whether public or private, can keep credit rolling until confidence in them has collapsed, and lenders disappear, creating a crisis. During a crisis, investors withdraw from risk taking generally, rather than specific sources. Even countries face that problem as their credit can be taken away if other countries with similar issues are having problems.
Fickle expectations that destabilize banks, also apply to governments especially when they are borrowing external debt. It is normal for emerging markets to have sovereign external debt defaults. Development of their social, political, and economic aspects into becoming an advanced market can take a while, but will graduate away from defaults. Governments have found ways to rid themselves of serial default on sovereign debt or very high inflation. But serial banking crisis still remain.
Normal function of a bank is to borrow short term, and lend long term. A crisis can occur if they cannot fund their short-term obligation, with the illiquid long-term assets. Some governments borrow with short term maturities because of the benefit of lower interest rate. The problem of relying on short term borrowing is that confidence can change, and remove a source of funding.
Although there are similarities between private and public financial crisis, there are differences as well. Governments do not default in the same manner that private institutions do. Governments do not cease to exist with a default, and defaulting requires more considerations than economic and financial cost-benefit analysis as social and political factors needs to be considered.
Private institutions and individuals have clearly defined rights, such as assets being taken over when undergoing bankruptcy. Creditors do not necessarily have that option with governments, even if on paper they do. For sovereign nations, it is not just ability to repay debt that matters, but also willingness.
Caveats?
This is primarily a quantitate account of crises. Looking at statistical trends rather than detailed descriptions of various crisis. There are very brief descriptions of various crises. The general explanations of various aspects of a crisis are short, and might need more research to understand the problems. A basic understanding of finance and statistics would help in reading the book.
As the book looks at trends in data, what the authors recognize is the need for better data. Much of the data was hard to obtain, contains suspect data, and lot of missing data. Improving the quality of the data, can improve an understanding of particular trends within the data.
October 10, 2021
I finally got around to reading this. People in the industry talk down about it because of the calculation errors they made in Excel, but overall this has some useful info.
The authors examine the global incidence of 4 types of crises over a 200 year span. It covers external default, domestic default, periods of high inflation, and currency crashes. It gives a great overview of where and when crisis have happened. While I knew about the existence of many of the crises mentioned, there were many I didn't know about. These incidences also tended to cluster in time. There was also a bit of discussion on the policy and macroeconomic context at the time of crisis (financial repression vs financial liberalization, commodity booms and busts, wars, etc). The charts and data throughout the book are really good, especially in part 1. I will revisit it again in the future.
The chapter on domestic default was interesting because that type of crises is not discussed nearly as frequently as the other three. They created their own dataset of domestic debt and default events but I disagree with their classification method. Interest rate changes, debt restructuring and currency replacements (after hyperinflation) are clearly cases of domestic default. On the other hand, it's confusing to label foreign currency liabilities and asset seizures as domestic just because they are under domestic legal jurisdiction. This chapter was still useful and they highlighted the contribution of domestic government liabilities to other types of crises.
The historical data was then compared to the subprime crisis. Better books have been written on the subprime crisis so I don't think I got much out of this. The conclusions were obvious and superficial, e.g. the GFC was the worst crisis since the depression. The authors believe that this type of crisis could have been anticipated by looking at the historical data. I agree that it's possible to foresee but not with their method. I think they put too much emphasis on the current account deficit as the cause of the crisis. It's likely the other way around. The conditions creating the crisis (loose lending) contributed to a larger current account deficit.
I am more interested in the mechanics of crises so I liked the timeline at the end of the book showing the sequencing of crises. It was too short for me though and ignores other ways that crises can happen. Their timeline puts inflation crises after (and as a result of) currency crashes yet it can also happen the other way around (during government deficit monetizations).
The important and useful elements were the discussion of the historical incidence of crisis, the temporal and regional relationship between crises, the charts and the data. If you are in a hurry, just read part 1.
The authors examine the global incidence of 4 types of crises over a 200 year span. It covers external default, domestic default, periods of high inflation, and currency crashes. It gives a great overview of where and when crisis have happened. While I knew about the existence of many of the crises mentioned, there were many I didn't know about. These incidences also tended to cluster in time. There was also a bit of discussion on the policy and macroeconomic context at the time of crisis (financial repression vs financial liberalization, commodity booms and busts, wars, etc). The charts and data throughout the book are really good, especially in part 1. I will revisit it again in the future.
The chapter on domestic default was interesting because that type of crises is not discussed nearly as frequently as the other three. They created their own dataset of domestic debt and default events but I disagree with their classification method. Interest rate changes, debt restructuring and currency replacements (after hyperinflation) are clearly cases of domestic default. On the other hand, it's confusing to label foreign currency liabilities and asset seizures as domestic just because they are under domestic legal jurisdiction. This chapter was still useful and they highlighted the contribution of domestic government liabilities to other types of crises.
The historical data was then compared to the subprime crisis. Better books have been written on the subprime crisis so I don't think I got much out of this. The conclusions were obvious and superficial, e.g. the GFC was the worst crisis since the depression. The authors believe that this type of crisis could have been anticipated by looking at the historical data. I agree that it's possible to foresee but not with their method. I think they put too much emphasis on the current account deficit as the cause of the crisis. It's likely the other way around. The conditions creating the crisis (loose lending) contributed to a larger current account deficit.
I am more interested in the mechanics of crises so I liked the timeline at the end of the book showing the sequencing of crises. It was too short for me though and ignores other ways that crises can happen. Their timeline puts inflation crises after (and as a result of) currency crashes yet it can also happen the other way around (during government deficit monetizations).
The important and useful elements were the discussion of the historical incidence of crisis, the temporal and regional relationship between crises, the charts and the data. If you are in a hurry, just read part 1.
January 8, 2024
I picked this up hoping to get a thorough overview of the history of financial crises. Being a frequently referenced book on the subject, my expectations were quite high, but unfortunately the book mostly disappoints.
The last chapter starts with an epigraph quoting Rose Bertin: “There is nothing new except what is forgotten”. And it truly is little new in this book. What is new is the dataset the authors have constructed of central government debt that stretches back until the medieval ages. This is no small feat, even though it seems to mostly confirm a well-known fact: financial and debt crisis are nothing new. In fact they have been recurrent since the time of Edward III of England.
Rogoff and Reinhardt make some interesting observations. For instance, that debt crises usually follow periods of higher capital mobilization/inflow and subsequent surges in asset prices. That inflation, and in some cases dollarization, is a standard mechanism for defaulting on debt. And that missing reporting on domestic debt can explain the puzzle of why many countries default on low debt-to-gdp ratios.
However, the book stops here and does not make any further inquiry into most of these observations. Exactly how does the mechanism on defaulting on debt through inflation play out? Why not discuss stricter regulation on capital flows, if it is such a good predictor for both debt and financial crises? The title of the book is “This time is different”, the collective mentality of ignorance that seems to follow each new crisis. Why not have a – ever so brief – discussion of the theory of how these manias come about? For instance, referencing Minsky?
Given that the biggest innovation of the book is the dataset, it was even more disappointing to read about the controversy surrounding it. The authors have been criticized for miscalculating GDP-growth, wrongly comparing debt across currencies/currency regimes and making unclear distinctions between private and public debt. The reader is left with a load of predictable, but untrustworthy, observations on faulty data.
If you’re interested in financial and debt crises, read another book.
The last chapter starts with an epigraph quoting Rose Bertin: “There is nothing new except what is forgotten”. And it truly is little new in this book. What is new is the dataset the authors have constructed of central government debt that stretches back until the medieval ages. This is no small feat, even though it seems to mostly confirm a well-known fact: financial and debt crisis are nothing new. In fact they have been recurrent since the time of Edward III of England.
Rogoff and Reinhardt make some interesting observations. For instance, that debt crises usually follow periods of higher capital mobilization/inflow and subsequent surges in asset prices. That inflation, and in some cases dollarization, is a standard mechanism for defaulting on debt. And that missing reporting on domestic debt can explain the puzzle of why many countries default on low debt-to-gdp ratios.
However, the book stops here and does not make any further inquiry into most of these observations. Exactly how does the mechanism on defaulting on debt through inflation play out? Why not discuss stricter regulation on capital flows, if it is such a good predictor for both debt and financial crises? The title of the book is “This time is different”, the collective mentality of ignorance that seems to follow each new crisis. Why not have a – ever so brief – discussion of the theory of how these manias come about? For instance, referencing Minsky?
Given that the biggest innovation of the book is the dataset, it was even more disappointing to read about the controversy surrounding it. The authors have been criticized for miscalculating GDP-growth, wrongly comparing debt across currencies/currency regimes and making unclear distinctions between private and public debt. The reader is left with a load of predictable, but untrustworthy, observations on faulty data.
If you’re interested in financial and debt crises, read another book.
March 18, 2023
Having read Kindleberger’s “Manias, Panics and Crashes”, I found that most of Reinhart’s and Rogoff’s conclusions were already covered in Kindleberger’s masterwork.
Nevertheless, Reinhart’s and Rogoff’s “This time is different” is a data-rich and broad based work which mainly revolves on two concepts: serial/cyclical defaults and how such default cycles are more common than it is widely thought and also the “this-time-is-different syndrome”, including a breakdown of the most common arguments to justify how, in a given context, no crisis can be repeated.
Trying to apply certain conclusions of the book to the latest events (banking crises as of March 2023), one can’t help but wonder that, if as Reinhart and Rogoff sustain, a banking crisis is more commonly an amplifier instead of a trigger, which was the trigger that the current banking crisis is amplifying?
Another two important factors - real estate unsustained and soaring prices and capital flows bonanzas - are also at stake in the present economic environment. Indeed, reading this book, it is surprising how good of a banking crises predictor soaring real estate prices can be (not so much as an indicator of currency crashes).
Finally, it is interesting that, at the time of writing, cryptoassets were not around, thus, they weren’t taken into account as part of financial institutions balance sheet.
In a nutshell, although I did not find this book a very original study, I’ve nonetheless retrieved important insights from it.
Nevertheless, Reinhart’s and Rogoff’s “This time is different” is a data-rich and broad based work which mainly revolves on two concepts: serial/cyclical defaults and how such default cycles are more common than it is widely thought and also the “this-time-is-different syndrome”, including a breakdown of the most common arguments to justify how, in a given context, no crisis can be repeated.
Trying to apply certain conclusions of the book to the latest events (banking crises as of March 2023), one can’t help but wonder that, if as Reinhart and Rogoff sustain, a banking crisis is more commonly an amplifier instead of a trigger, which was the trigger that the current banking crisis is amplifying?
Another two important factors - real estate unsustained and soaring prices and capital flows bonanzas - are also at stake in the present economic environment. Indeed, reading this book, it is surprising how good of a banking crises predictor soaring real estate prices can be (not so much as an indicator of currency crashes).
Finally, it is interesting that, at the time of writing, cryptoassets were not around, thus, they weren’t taken into account as part of financial institutions balance sheet.
In a nutshell, although I did not find this book a very original study, I’ve nonetheless retrieved important insights from it.
May 18, 2023
I read a Substack the other day that discussed the argument against reading books. The core idea presented was that books are often longer than they need to be to tell their story, meaning we waste a lot of time reading them that could be more effectively used elsewhere. A smaller number of books, this argument contends, fall into categories where our minds are captured, there is importance in reading the book or it truly takes hundreds of pages to make the case.
I wasn’t so sure of this, but unfortunately I think that this book supported the argument above.
The core case of the book is fairly simple and the foundation it builds on, for the average reader, is quite straightforward. There is a lot of work done to explain the data behind the story they are telling, but this wasn’t something I found myself able to engage with easily (and would argue that it’s something that could have been served well by an annex). When I did try to engage I did find that there were a number of people critiquing the data, which meant I didn’t want to delve too deep. The overarching idea of the book didn’t seem to be hugely affected by that debate - which begs the question what the data did for the storytelling.
Ultimately, there are some interesting issues here and ones j may explore further, but likely via shorter form mediums which have a more dynamic ability to respond to critique.
It took me a long time to get into the core of this book.
I wasn’t so sure of this, but unfortunately I think that this book supported the argument above.
The core case of the book is fairly simple and the foundation it builds on, for the average reader, is quite straightforward. There is a lot of work done to explain the data behind the story they are telling, but this wasn’t something I found myself able to engage with easily (and would argue that it’s something that could have been served well by an annex). When I did try to engage I did find that there were a number of people critiquing the data, which meant I didn’t want to delve too deep. The overarching idea of the book didn’t seem to be hugely affected by that debate - which begs the question what the data did for the storytelling.
Ultimately, there are some interesting issues here and ones j may explore further, but likely via shorter form mediums which have a more dynamic ability to respond to critique.
It took me a long time to get into the core of this book.
February 22, 2019
I made a page of notes criticizing the book, so many reviews already who'll read mine.
One thing because it was replicated so often is considering Austria to be the same country for several hundred years.
After WW1, Austria lost about 85% of area and population
They act surprised there was no hyperinflation before 1800.
Hyperinflation isn't caused by clipping coins or printing more paper,
the German author EM Remarque in one of his books tells how business creates IOU's, takes them to the discount window at the central bank and 95% of the face value gets credited to their bank account.
When making out an IOU, one can add 3,6 or 12 zeros to any number in a few seconds.
This is important to us now, in 2008 for the 1st time the FED let many companies access its discount window, AIG, GE, wall st crooks, mutual funds, auto co. and more.
When we have the next crisis, the line will surely be much longer.
They say the 1930's depression was so bad because half the banks failed,
not a good statistic
1000 banks with assets of $1 million each is equal to ONE bank with $1 Billion assets.
Most of the banks that failed were small one branch country banks.
Also they don't mention the effect of the fractional banking system,
https://en.wikipedia.org/wiki/Fractio...
A bank gains $1 million and can lend out $5 million,
the process works in reverse,
lose a million and the loans have to decrease by $5 million
One thing because it was replicated so often is considering Austria to be the same country for several hundred years.
After WW1, Austria lost about 85% of area and population
They act surprised there was no hyperinflation before 1800.
Hyperinflation isn't caused by clipping coins or printing more paper,
the German author EM Remarque in one of his books tells how business creates IOU's, takes them to the discount window at the central bank and 95% of the face value gets credited to their bank account.
When making out an IOU, one can add 3,6 or 12 zeros to any number in a few seconds.
This is important to us now, in 2008 for the 1st time the FED let many companies access its discount window, AIG, GE, wall st crooks, mutual funds, auto co. and more.
When we have the next crisis, the line will surely be much longer.
They say the 1930's depression was so bad because half the banks failed,
not a good statistic
1000 banks with assets of $1 million each is equal to ONE bank with $1 Billion assets.
Most of the banks that failed were small one branch country banks.
Also they don't mention the effect of the fractional banking system,
https://en.wikipedia.org/wiki/Fractio...
A bank gains $1 million and can lend out $5 million,
the process works in reverse,
lose a million and the loans have to decrease by $5 million
February 19, 2023
Simply bad.
The only saving grace is that for a book that has become quite popular, the message of "This Time Is Different" is constantly pushed, and the book refers to the complexity of debt crises. But frankly, these are obvious points, better explained elsewhere, and significantly devalued by the issues in the book.
The primary issues are about the usage of data and analysis. I won't go into detail about the analytical issues (Error? Fraud? Negligence?) that were discovered in the original paper, but the fact that the book doesn't seek to allay those concerns directly is concerning.
The data used is quite bad as well. Just one example is how the authors have Sri Lanka defaulting multiple times in the 1980s - which did not happen. Noting this for Sri Lanka, it begs the questions, how much more of the data is flawed to such a great extent? Would that not thereby change the analysis - if countries with debt levels that were well below default risk were flagged as having defaulted?
There are also issues in the methodology beyond it. A key example is how the "high inflation" threshold is set at 20%. While for countries with single digit inflation, this makes sense, many developing countries do not necessarily have a history of single digit inflation until very recently. This would again, skew the data, taking in much milder cases than relevant into the definition of crisis.
The overall issue then, is of cherry picking to fit a narrative. This is unfortunate, since there is plenty of far more rigorous evidence across history that can prove the "This Time Is Different" syndrome, without having to resort to such methods. Especially for the stature of Reinhart and Rogoff, all this seems almost inexcusable.
The only saving grace is that for a book that has become quite popular, the message of "This Time Is Different" is constantly pushed, and the book refers to the complexity of debt crises. But frankly, these are obvious points, better explained elsewhere, and significantly devalued by the issues in the book.
The primary issues are about the usage of data and analysis. I won't go into detail about the analytical issues (Error? Fraud? Negligence?) that were discovered in the original paper, but the fact that the book doesn't seek to allay those concerns directly is concerning.
The data used is quite bad as well. Just one example is how the authors have Sri Lanka defaulting multiple times in the 1980s - which did not happen. Noting this for Sri Lanka, it begs the questions, how much more of the data is flawed to such a great extent? Would that not thereby change the analysis - if countries with debt levels that were well below default risk were flagged as having defaulted?
There are also issues in the methodology beyond it. A key example is how the "high inflation" threshold is set at 20%. While for countries with single digit inflation, this makes sense, many developing countries do not necessarily have a history of single digit inflation until very recently. This would again, skew the data, taking in much milder cases than relevant into the definition of crisis.
The overall issue then, is of cherry picking to fit a narrative. This is unfortunate, since there is plenty of far more rigorous evidence across history that can prove the "This Time Is Different" syndrome, without having to resort to such methods. Especially for the stature of Reinhart and Rogoff, all this seems almost inexcusable.
June 25, 2022
A few points about the book that readers should know before starting:
- It is an economics study heavily based on data. The authors are crystal clear about their quantitative approach; therefore, one should not approach it expecting accessible language or any beautiful poetic writing style;
- The book hasn't been updated after 2011 and does not incorporate any review on the actual aftermath of the "Second Great Contraction" (as the authors name it). The editors should readily take note of that and ask the authors to write a postface informed by the benefit of hindsight;
- There has been some controversy regarding Reinhart & Rogoff's work, but, as far as I could find, there are no critiques written on this book. Aggregation errors and calculation mistakes refer to a 2010 paper by Reinhart, which arguably benefited the defense of austerity by conservative politicians. Whereas this tarnishes the economists' reputation, one should be careful not to disregard their work and the warnings contained therein.
To summarize, I would review it as an informative book informed by a praiseworthy data collection effort. 3.5 out of 5 stars.
- It is an economics study heavily based on data. The authors are crystal clear about their quantitative approach; therefore, one should not approach it expecting accessible language or any beautiful poetic writing style;
- The book hasn't been updated after 2011 and does not incorporate any review on the actual aftermath of the "Second Great Contraction" (as the authors name it). The editors should readily take note of that and ask the authors to write a postface informed by the benefit of hindsight;
- There has been some controversy regarding Reinhart & Rogoff's work, but, as far as I could find, there are no critiques written on this book. Aggregation errors and calculation mistakes refer to a 2010 paper by Reinhart, which arguably benefited the defense of austerity by conservative politicians. Whereas this tarnishes the economists' reputation, one should be careful not to disregard their work and the warnings contained therein.
To summarize, I would review it as an informative book informed by a praiseworthy data collection effort. 3.5 out of 5 stars.
January 1, 2020
用惊人的各种历史数据讲清楚了经济危机理论，资料和图表极全。虽然讲的是国家和世界范围内，宏观经济的债务理论和银行危机的来龙去脉以及特征，对个人和家庭财务管理的思路借鉴也不无裨益。一定一定要小心地控制债务水平！！
唯一的缺点是图表、数据和资料罗列过多，论述部分显得单薄，让人感觉像读PPT材料，有些干瘪艰涩。但考虑到作者研究的时间范围（前后800年）和空间范围（全球五大洲各个国家），可以理解作者的主要精力放在对庞杂数据进行分析以及制作图表上了，文字表述单薄不足为怪。
顺便说一句题外话，从图表数据看，二战前人类社会发生的经济危机既频繁又对社会冲击强劲，以1920年代的“大萧条”为最。二战后以美国为首的西方社会建立了国际货币组织，世界银行，和世界贸易组织，降低了严重经济危机发生的频度和危害程度，人类确实进入了数十年的和平繁荣时期。虽然本书的主题是对美国最新的2008年危机进行研究，但不能否定美国对全球和平与繁荣作出的贡献。
唯一的缺点是图表、数据和资料罗列过多，论述部分显得单薄，让人感觉像读PPT材料，有些干瘪艰涩。但考虑到作者研究的时间范围（前后800年）和空间范围（全球五大洲各个国家），可以理解作者的主要精力放在对庞杂数据进行分析以及制作图表上了，文字表述单薄不足为怪。
顺便说一句题外话，从图表数据看，二战前人类社会发生的经济危机既频繁又对社会冲击强劲，以1920年代的“大萧条”为最。二战后以美国为首的西方社会建立了国际货币组织，世界银行，和世界贸易组织，降低了严重经济危机发生的频度和危害程度，人类确实进入了数十年的和平繁荣时期。虽然本书的主题是对美国最新的2008年危机进行研究，但不能否定美国对全球和平与繁荣作出的贡献。
December 26, 2025
Unreadable, turns out someone replicated their data and not come to the same conclusion as them. It’s basically a graduate paper. It also makes no sense why would they add 150 pages of data appendix to the book. The last few chapters were okay and there were some data that made the reader think. It was interesting to see how housing bubbles unfold if it goes hand in hand with a banking crisis. If you end up getting this book I would recommend to read it from Part IV, they even mention that those first parts can be skipped.
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