The debt crisis in Dubai is probably overblown in the media in terms of global economic consequences, but the fear that the problems will spill over into other markets is certainly real enough. But if this sounds like deja vu all over again, you’re right.
Been there, done that, you might say. Of course, that doesn’t mean the global economy is immune to debt-fueled crisis. In fact, it’s a safe bet that this strain of financial crisis–red ink–is ongoing, waxing and waning through time. All the more so these days, when government and consumer balance sheets are loaded up with liabilities.
As for the current blowback from Dubai, there’s chatter that Greece and Hungary may sucked into the vortex.
All of which inspired us to take another look at the recently published This Time is Different: Eight Centuries of Financial Folly, which we reviewed in the October issue of The Beta Investment Report and is republished below. On that note, you can see the entire October issue of the newsletter here.
As for debt and delusion, history has much to teach us. The only question is whether we’re listening.
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The following originally appeared in the October 2009 issue of The Beta Investment Report
BOOK NOTES
This Time Is Different: Eight Centuries of Financial Folly (Princeton University Press)
by Carmen M. Reinhart and Kenneth S. Rogoff
Kindleberger labeled it a “hardy perennial.” Minsky developed a theory called the “financial instability hypothesis.” And now comes a monumental new book on the subject of financial crises, dispensing a data-rich review of an affliction that recognizes no political border, time period or (apparently) policy prescriptions aimed at preventing such events.
Admonitions of this sort presumably need no introduction at this juncture. The world is once again in tune with the finer points of a financial crisis and what it means for markets and economies. Although these debacles are a chronic scourge through time, it seems that every generation must relearn a fundamental truism: The potential for calamity on a broad scale is always lurking in the future, which means that thinking otherwise lays the groundwork for the next disaster.

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