Hacker News Reader

Comment by j_baker | Hacker News Reader

If you haven't already, I'd suggest reading This Time is Different. It turns out that our current situation isn't unique, and is in fact a pretty vanilla financial crisis. The elements are the same: large deficits that artificially prop up the economy causing a bubble, sovereign debt defaults, loss of investor confidence caused by political division (think it was a coincidence things came to a head during the 2008 election?), and bank runs. Sad how we always forget 800 years of financial history.

http://www.amazon.com/gp/aw/d/0691142165/ref=redir_mdp_mobil...

View on HN

You have to be careful with your analysis. In particular when you're talking about large deficits, you should not confuse private actors and government.

In the run-up to the crisis, the economy was largely fuelled by private debt. Think excessive credit card debts and, more importantly, insanely lax mortgage requirements.

What we have been witnessing is a shift of this debt away from the private sector (which cannot sustain an unlimited amount of debt) to the government sector (which, at least in the case of a sovereign government like the US, can sustain an unlimited amount of debt because it's the entity running the system).

The distinction between private and government debt is crucial, because government debt equals private assets.

To be simplistic, it seems that things are quite different this time. The fundamentals of crises may be the same or similar, but the world has -never- been linked in the way it currently is, and the world population, and total consumption has -never- been as high as it currently is.

I hate to argue against an entire book with a sentence like that, but claiming that this is a "pretty vanilla financial crisis" seems to take the overall situation in a dismissive light that I don't agree with.

I think you and the book agree. The title "This Time is Different" is a reference to how economists tend to see the same signs that always indicate a financial crisis and say "This time is different".

When I said that this is a vanilla financial crisis, I meant that the things the grandparent post mentions aren't necessarily unique, albeit more widespread than normal. In fact, it's surprising how frequently you see the same patterns appearing.

One important point in this book (p. 32 in my PDF): Greece has been in default or reschedule of its debt in 50.6% of the years since its independence in 1829. More frightening, Spain hasn't fared much better overall in the past 3 centuries.

Spain's public debt is not high by European standards. It is still less than the public debt levels of Britain, France and Germany.

Reply on news.ycombinator.com