Friday, June 17, 2011

"The Reinhart & Rogoff Book" - General Comments

This Time Is Different (2009) by Carmen Reinhart and Kenneth Rogoff is a widely-quoted and referenced book.  Often it is referred to as "the Reinhart and Rogoff book."

I find the book to be interesting and unique, although I don't agree with some of its contents.  From an overall standpoint, perhaps the greatest misgiving I have with regard to the book is the (strong) implication that previous economic episodes are highly relevant to that of today.

With regard to our (putative) current post-financial crisis period, there are a few quotes in the book that are particularly relevant.  The first is found in Chapter 14, page 230, when it says "...the recessions surrounding financial crises are unusually long compared to normal recessions, which typically last less than a year."  Another quote is seen in Chapter 14, page 235, "It is important to recognize that standard measures of the depth and duration of recessions are not particularly suitable for capturing the epic decline in output that often accompanies deep financial crises.  One factor is the depth of the decline, and another is that growth is sometimes quite modest in the aftermath as the financial system resets."

I find that many have interpreted the above quotes (and similar findings of the book) with regard to our current economic situation in a rather disconcerting fashion.  Many have interpreted these findings to conclude that since this is the aftermath of a "financial crisis" recovery and growth will be tepid; as such, the lack of recovery / growth that we are now experience is nothing to be unduly concerned about as it is "normal" from a long-term historical standpoint.

I think this viewpoint is a very dangerous one to adopt because it certainly can lull one into a "false sense of security" or otherwise  can breed complacency.

I am of the belief, stated frequently in this blog, that our current economic situation is unique, i.e. not comparable to those in the past.  As such, I am not adopting the aforementioned "don't be worried, this is normal" mindset as we continually witness various facets of economic weakness and notably odd manifestations of such.
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The Special Note summarizes my overall thoughts about our economic situation

SPX at 1267.64 as this post is written

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