7 of 8 people found the following review helpful
Useful study of capitalist crises,
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This review is from: This Time Is Different: Eight Centuries of Financial Folly (Hardcover)In this very useful book, authors Carmen Reinhart, a professor of economics at the University of Maryland, and Kenneth Rogoff, a professor of economics at Harvard University, present the findings of decades of research into economic crises.
Their title refers to the recurring belief that we are now too smart to have crises: this time is different. Before every crisis, governments, financiers, bankers and pundits promise that this time we really have reached the end of crises, of history, etc. For example, in April 2007, the International Monetary Fund told us that the risks to the global economy were extremely low.
The authors show that repeated sovereign default on external debts is the norm throughout every region of the world since the birth of capitalism. Defaults peaked in the wars against Napoleon, the 1820s-1840s, the 1870s-1890s, the 1930s-1950s and the 1980s-1990s. There were lulls in 1890-1914 and 2003-8. 1947 was the peak of the largest default in modern history, when countries representing 40 per cent of world GDP were in default or rescheduling.
Serial default is the norm. Since 1800, there have been 70 defaults on domestic public debt. Britain defaulted in 1749, 1822, 1834, 1888-89 and 1932 by converting debt into lower coupon rates. The USA defaulted in 1933 by abrogating the gold clause, to reinflate its economy through expansionary fiscal and monetary policy. Other countries have defaulted by inflation.
Serial banking crises are also the norm. De-regulation encourages high international capital mobility, which repeatedly produces international banking crises. These crises drag down economic growth and are contagious.
The authors show that after crises, house prices fall by 35 per cent on average, for 6 years; unemployment rises by 7 per cent for 5 years (in the Great Depression, by 16.8 per cent); GDP falls by 9 per cent for 2 years (in the Great Depression, for 4 years); it takes 4.5 years for output to reach its pre-crisis level (after the Great Depression, 10 years); and average government debt rises by 86 per cent after 3 years. As they point out, "the biggest driver of debt increases is the inevitable collapse in tax revenues that governments suffer in the wake of deep and prolonged output contractions."
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Initial post: 9 Sep 2011 11:23:24 BDT
Nuno Figueira says:
Capitalist? Governments and their interventionism cause most of these prices and the state/bank cartel the remaining and you call these capitalist crises? The monetary market is not a free market, it is controlled and "regulated" by an handful of individuals in each country. You can not classify as capitalist when there's no freedom for each individual to compete. Corporatism, public and private, maybe, capitalism, no. And it will get worse as the people ask for more power to those who cause most of these crisis (governments and central bankers). Just watch as the next few months unfold.
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