I’m a sucker for longitudinal analysis whether qualitative or quantitative, so my Saturday was made when I read Carmen Reinhardt’s discussion of financial crises in a 200-year perspective. The “this time it’s different”-illusion should of cause be of interest to policy analysts:
We note that policymakers should not be overly cheered by the absence of major external defaults from 2003 to 2007, after the wave of defaults in the preceding two decades. Serial default remains the norm; major default episodes are typically spaced some years (or decades) apart, creating an illusion that “this time is different” among policymakers and investors. We also find that high inflation, currency crashes, and debasements often go hand-in-hand with default. Last, but not least, we find that historically, significant waves of increased capital mobility are often followed by a string of domestic banking crises.
On a purely technical note, I’d suggest that Reinhardt and her co-author use a font which is better suited to reading in a small scale on their diagrammes.
Unintentional irony: Reinhardt is a former VP at Bear Stearns.