This Time is Different
I was required to complete a review on one of the listed books. First what jumped to my eyes the heading of the book. I thought this book ‘This Time is Different’ will be interesting to read. I thought it will be about different times and different countries financial history (about bank crisis, currency crashes and so on) and how these countries survived in different times. Furthermore, before I bought this book, I read the brief of the book it sounded interesting, than I wanted to read and to know more about it.
Carmen M. Reinhart is the Dennis Weatherstone Senior Fellow at the Peterson Institute for International Economics. ...view middle of the document...
The ‘This Time is different syndrome’ that financial crisis just happening to other people and countries it won’t happen to us, as we are doing everything better, because we learned from previous mistakes.
There are a short examples about This Time is different Syndrome occurred during 1930 to 2000 in many regions (Latin America, Asia, The United States). One of the example in 1930 during Great Depression the thinking was that won’t be another world war, strong global growth and political stability sustained and debt in developing countries are low.
The part one of the book is more technical. There was an investigation about all episodes of defaults “Debt Intolerance” where was including and countries with middle income from 1970-2008. Debt defaults occurred than ratios of external debt to GDP was bellow than 60%. E.g. Country like Mexico in 1982 ratio of debt to GDP 47%.
The next part of the book about sovereign countries defaulted on their loans from external creditors. Walter Wriston former Citibank chairman said “Countries don’t go bust”. (p.51) For most countries defaults happens before the country runs out of the resources.
Here arise the question is the country can pay the debt or don’t want to pay ?
In early centuries like sixteen, seventeen countries like France, Spain, Britain was the main borrowers. At this time if countries failed to repay the debts they were occupied by the borrower. In the modern era this idea is not perfect, because borrower country won’t have benefits from it, as she has to take all expenses and risks.
Jonathan Eaton and Mark Gersovitz argued (p.55) I early times access to international markets was benefit as to get food, but in modern era it is important to engage to productive projects or to borrow money to fight recessions.
The other concept was discuss Illiquidity and Insolvency. Where country is facing with short term funding problems and the other that is not want to pay or able to pay. If country for the long term has financing problems there are third party(IMF) which can provide help and help the country to stand on its feet. The critical point in this chapter, that for borrowers was more costly to borrow than for the creditors. So following from that the question rose why the creditors still continue to trust the debtor as they were
“This time is different”- every time will be the same, borrowers and lenders would remain constantly on edge, and debt markets would never develop to any significant degree.(p.67).
The first default happened during the Napoleonic War. In 1820 to 1840 the second and half of the countries were in default. In 1870 followed the third and the fourth started in 1930-1950 (the Great Depression). In 1980-1990 was the final default in the emerging markets. The largest default era in the history was after World War II. The bank crisis was associated with these defaults as they happened during World War I and also during World War II.
Banking crisis drag down world growth...