This Time is Different: Eight Centuries of Financial Folly

We are coming up short on the revenue side, so it is harder to pay our debts, whether individuals, businesses, or governments. That situation means ongoing financial hardships, including crises of sovereign debt around the world.

If we go into a downturn, we hope central banks will be wise enough not to monetize government debt in any fiscal crisis. Sadly, they probably will.

The following list comes from Michael Pettis, a very incisive commentator on global economics. It is probably one of the best single pieces you can read on how to identify problem countries in advance. Here is a slightly edited version of Michael Pettis’s five things that matter.3 1. Debt levels matter. The best way to measure them is as total debt

The point of no return for countries is when interest rates are rising faster than their growth rates. At that stage, there is no hope of stabilizing the deficit. This is the situation many countries in the developed world now find themselves in.

this book I will argue that certain types of financial crises—like the crises that have affected many Latin American and Asian countries in recent years—are problems of sovereign balance sheet mismanagement and not economic mismanagement.

Now, there are bullish voices telling us that things are headed back to normal. Mainstream forecasts for GDP growth this year (2010) are quite robust, north of 4 percent for the year, based on evidence from past recoveries. However, the underlying fundamentals of a banking crisis are far different from those of a typical business-cycle recession, a