What do you think was the biggest mistake of the '29 Crash? I've heard Smoot-Hawley's passage essentially turned a skid into a crash. True?

Just how fast did the market drop? DJIA down from, what, 375 on 29 Oct to what by Nov? By 1/30? At bottom?

Maybe the most important question (for me, anyhow): what's the best source for detailed info on this? (Besides your own book? ;D)

Do highly paid persons lose their shirts in financial crises, do they maintain their wealth consistently, or is it different every time?

I wonder what you might think of the following. I would assume that you are not familiar with the economic theory of Bernard J. Lonergan. He died in 1984 and was recognized as one of the most significant philosopher / theologian of 20th century. His economic thought is little known, except in a small circle of predominantly Catholic philosophers and theologians.

But in [see vol 15 and 21 of his collected works (Amazon.com)] he claims to have achieved a "Copernican Revolution" in his theory; maintaining that it is the very nature of economics to be cyclical. However, our failure to understand the nature of these cycles results in the periodic booms and busts documented in your work. The booms and busts, he argues He further argues that the history of documented periodic booms and busts is actually the result of a failed theoretic understanding of the economy and the correspondingly practical implementation of such failed theory.

He maintains that it is possible to arrive at what he terms the "pure cycle," that is neither boom nor bust. What is needed is the correct understanding that would enlighten the authentic self interest of consumers and producers alike; a major educational challenge with democracy itself at stake.

The most recent economic downturn has raised a fundamental question, What is capitalism? It seems highly improbable that present day economists can break from their worldview since the "evidence" of booms and busts seems to "prove" their world view.

I would offer that they suffer under the same fundamental illusion as did Alan Greenspan. The major difference is that Alan Greenspan is one person who can acknowledge that he got it wrong. But unless we can bring what would be viewed by the economist "foreign" thought to bear on our problem, I am afraid we are doomed to repeat the ups and downs that are having a more and more debilitating impact on the people of this globe.

Many years ago, I read a book about the Great Wave theory in economics, which argued along the lines that every 60 years or so economies go through crashes like this one. I am not an economist, but am curious if professional economists give any credence to these wave ideas, or are they discredited? Thanks

Do all historic financial crises have a straight line recovery or have any experienced the "W" shaped recovery about which have heard? What is required for the "W" recovery to occur.

Please, please, please explain to me how a national economy can be healthy while sustaining a monthly trade deficit (in goods and services) of 20+++ billion dollars (a month) for over a decade with no end in sight.
Nobody has answered that and I've asked every economist that I can reach.
Thank you,
Ben Davidson

I remember there were several warnings about the real estate bubble, and cases like that involving Casey Serin, a house flipper who got caught holding six houses as prices began to dip. He started a Web site Iamfacingforeclosure.com to get suggestions from everyone about what he should do, and eventually all of his houses were foreclosed. This was in 1995-6, well before the crash. Yet people ignored these signs of stress in the economy, and the stock market blasted ahead for a couple of years. You could see the economy beginning to come apart even before Lehman Brothers, etc. and I remember warnings about the precarious state of Freddie and Fannie. Yet all these warnings were ignored because everyone got caught up in the good times feeling. Yelling louder doesn't work. So what might work in the future to minimize the social impacts of these collapses, or are they in their own way perversely healthy in the long-run?

Question - If the recent "crisis" was "normal," was the stimulus necessary, or was the stimulus also a "normal" respnnse?

Based upon your comparative study, (a) how long do you estimate this recession will last and solid growth will finally return? And (b) Is there a possibility that an even worse crisis can happen, as Nouriel Roubini is predicting in the Financial Times ?

I was trying to grasp just how "different" this crisis might be than previous crises. I would like to know the road you see ahead for the U.S. to recover from this collapse when I struggle to understand WHAT we actually still produce in this country.

Aside from essential services that cannot (yet) be outsourced (electricians, sanitation workers, builders, policemen, firemen, teachers, etc.), in what industries is the U.S. still a global competitor and what percentage of the U.S. economy do these industries employ?

I see a falling dollar, yet Chinese, Vietnamese, Cambodian, Indian, and many other countries' labor pools are still far cheaper than U.S. labor and is why most U.S. transnational companies have off-shored the bulk of their labor-intensive, highest value-added supply chain sections.

If 70% of our economy is consumption-based, how can an un- or under-employed workforce with a depressed currency continue to "consume"? What is the tipping point and how do you see us getting there? In what time frame?

Thank you.

During this current financial crisis, what is the probability of the United States defaulting on its debt? Specifically, defaulting on it's Government Sponsored Entity (GSE) bonds (Fannie Mae, Freddie Mac and Ginnie Mae)? Using your knowledge of history, can you please give me a range of numbers, i.e., 30-40% probability of default?

Question for Mr. Rogoff and Ms. Reinhart, please:

In the "this time it's different" category, most middle of the road financial commentators in the past have advised keeping a fairly modest portion of an investor's equity portfolio in foreign stocks, say 25%. Now, I see many of these same advisers upping their recommended percentage of foreign holdings to more---35, 40, even 50%. They say that the rest of the world now makes up a bigger portion of the total economy, that many emerging markets have matured and stabilized, and that the dollar is in for a protracted slide.

Well, this time, is it different---should we invest more overseas and less here in the U.S.?

Thanks for your thoughts.

Re: This time is different
How did other financial assets such as bonds (public and private), industrial commodities, gold, etc perform after the crises?

How can individuals protect themselves from these national disasters, other than putting money under the mattress? Are Treasuries of Inflation Protected Bonds a good alternative? Or is one better off with a world bond fund? Or should we try a trip to Mars?

Thanks for your book and your comments on NPR. So now that you have confirmed my suspicion that none of us learn from the past because of hubris(and ignorance) of our government and business elite. How can the poor middle class fool who was lead astray by these characters, survive this meltdown and prevent their children from suffering the same thing in the future?
Thank you, Paul Herd

It was quite interesting how our bubble was similar to others, so this made me wonder, how are we different?

Are we different in any fundamental way from the averages? (I know there are superficial differences)

I very much enjoyed the segment that featured the two of you and your book, which I plan to read.
My question is:
What would be your top 5 recommendations for legislation or regulation or other measures that might help smooth out the economic pattern and avoid the "boom or bust" problems. (You can propose more or less than 5 if you wish). Thank you.

Based upon your comparative study, (a) how long do you estimate this recession will last and solid growth will finally return? And (b) Is there a possibility that an even worse crisis can happen, as Nouriel Roubini is predicting in the Financial Times ?

Yours is on my #1 list of books to read and I've featured 3 reviews of it, now, on my blog. Thanks for writing it.

My question is this. Please go out on a limb and assess a percent chance of a U.S. debt default? If so, how many years would you expect it to take, judging by history?

Are there any examples of market-based economies that have actually managed to have steady growth as opposed to boom-and-bust cycles? If so, how do they do it? If not, how should WE do it?

Was there ever a time when the most powerful nation on Earth was also the greatest debtor nation on Earth?

Was there ever a time when the world's reserve currency was so completely fiat money?

The following are excerpts from an article by Dr. Hugh Ching, the founder of post-science, relating to history. The full article is at: http://www.postscience.com/innovate.htm

"Innovation, Quantity Theory Of Money (PQ=VM), Solution Of Value,
and Post-Science History on Predicting Financial Crisis after 2009
...
From history, we know that major innovations will continue to arrive, but what kind of innovation is unpredictable. Innovation is time-variant and is a significant contributor to the time-variance of value, which is defined as the sum total of all the future benefits and losses.

In general, history consists both time-invariant and time-variant elements. Only the time-invariant part of history repeat itself. Science deals exclusively with time-invariant quantities and satisfies the test of empirical verification. Post-science involves both time-invariant and time-variant quantities, such as value and life, both of which vary to infinity in time. History should belong to post-science. Post-science history has to isolate the time-variant elements from the time-invariant elements, which then can satisfy the scientific rigor of empirical verification.

There were three time-invariant occurrences which might serve as lessons of history on the development of the financial crisis after 2009. They are (1) the copying of US technology by Japan in its rapid rise to become the world number two financial power, (2) the experience of Taiwan Economic Miracle imitated by the current Chinese Economic Reform, and (3) the similarity between the lost decade in Japan and the current financial crisis in USA. T. L. Kunii, one of the Founders of Post-Science Institute, has been directly involved in these historical developments.
...
The time-invariant characteristics of innovation that major innovations will continue to arrive is verified by history. What troubles the current financial crisis is when and what innovation will arrive next to pull the economy out of the long recession; this is the time-variant character of innovation.

As time-invariant lessons of history that the limited supply of silver caused the fall of the Roman Empire, and the limited supply of gold contributed to the Great Depression, the national debt, which creates an artificial, unnecessary, and self-imposed constraint on the supply of the dollar, might become the cause of possibly the biggest world-wide financial disaster. In the current financial crisis, the Fed just prints money to increase M.

In conclusion, after this financial crisis is over, the solution of value should be used to prevent over-valuation ever to occur again. The government must start to mandate time-invariant non-violable laws of nature, not man-made laws formulated based on political interests. Society must move from the current market regulated by man-made laws to the free market of Milton Friedman regulated only by non-violable laws of nature. The non-violable constraints are described in the invariant lessons of post-science history, Quantity Theory Of Money, the solution of value, which are non-violable laws of nature in social science."

In the crisis you have described tonight is gold/silver investment a good way to preserve capital?

How can the understanding of past ignorance and arrogance be used fuel future knowledge and humility for capital appreciation for people who are nearing retirement?
What investment strategies worked best following the numerous recessions of the past?
Thanks,
Ram

Hello and thank you for such a timely work. "Arrogance and ignorance." You could not have summed up the years since Jimmy Carter any more succinctly. We are all arrogant and ignorant of history, and especially of our own fallibility. I haven't yet read your book, but what are your predictions for the United States? An Argentinian monetary devaluation followed by military junta takeovers? Or worse, since we have nuclear weapons? Or better?

I never believed we would compress the fall of Rome into two or three decades, but we are hell bent on achieving that. And the last people we will blame will be ourselves. To paraphrase a Mexican aphorism: "Poor Earth, so far from God, so close to the United States."

I just finished your book and really enjoyed the quality of your analysis, research, and--a surprise in this sort of book--writing.

As I was reading, I was wondering how you would evaluate the situation in China today. Banking system debt is up >35% of GDP in less than a year's time. Some of the things you mention in your book--rising house and stock prices, rising domestic government liabilities--suggest a risk of future bank crisis. Other factors--current account surplus, for example--suggest things are OK. What do you think?

Fritz

hello,
Prof. Rogoff,
is there any way that the cleaning up of the financial system can in itself create jobs?
ie hire many regulators,train more people to detect fraud,
break down big institutions into smaller ones,
teach and then employ economists/policy makers to establish better economic systems,
make economics 101 a basic part of US and world citizenship
create clubs for schools/colleges to debate
and understand economy basics
Also,
create a barter system-since people are short on cash but have skills, create a new barter system to buypass money?
Thanks for your comments

yeah, arrogance and ignorance. what about destructive blind greed, meaning wealth above humanity? at what point does greed become criminal by trampling the civilization that created it, the mother to it's life? i suppose this could be reassuring to hear, that this mess is somehow "normal". but in the big picture, one of these red flags, rapid deregulation, demonstrates the belief in being above the law. i just don't accept the defendants' more benign characterization of their pathological behavior as "this time it's different" as an acceptable defense. so what if this fits the pattern in history? where is the culpability that matches the damage?

So... Matt Tibbi was essentially correct when in his recent article for "Rolling Stone" he characterized Goldman Sachs (and the other financial speculators) as "a great vampire squid...".

Are treasury notes safe for the foreseeable future?

Based on your study, what would you expect is in store for us? Inflation? Stagflation?

So all of us would be wizards would of course like to know what does the past tell us about our particular future? And what should we do to prepare for it?

I know what you say about the recovery of capital, real estate and job markets. But I'd like to hear more about the looming debt crisis stage, the world's in general but specifically more about the USA's in particular. Is there a particular historical example that seems most closely parallel the current economic and political situation of the USA?

Are we simply facing a range or combination of possibilities: government debt defaults, dollar devaluation and/or inflation; growth-choking tax increases; severe cut backs in government budgets/services; fill in the blank? I.e., show the degree of predictive value in your theory.

Isn't the only efficient way out of this crisis global inflation of the money supply?

I am a cynic and do not believe Congress will tackle the underlying causes of this crash. I was astonished to learn during this crisis that there is a $200 trillion market in derivatives (trillion that is not a typo) that I knew nothing about. There is no Wall Street Journal page that I know of that documents the daily trading on this derivatives market as there are pages telling me about options trading. I can see the economic rationale for things like Credit Default Swaps, but don't see why they are not regulated. Since these are essentially insurance policies, I would think state regulators would look at them. The industry has avoided this simply by calling them swaps instead of insurance policies. Ok, but why would they want these markets be dark? And the cynical part of it is that I don't believe Congress will interfere because someone is making a lot of money off this system.

You said in your interview that stock markets return to where they were two or three years after crashes. But in the case of the Dutch tulip frenzy of the 17th Century, one tulip bulb sold for the equivalent of the price of an Amsterdam canal house just before the collapse. I don't know of any case where the price of tulip bulbs ever returned to that astronomical level (I lived in Amsterdam and well maintained canal houses today sell for $500,000 or so). Tulip bulbs now sell for cents a piece at Costco.

Will the loss of cheap oil in the world cause this downturn to be different?

Dear Reinhart & Rogoff;

Your book says legislators lobbied regulators to go easy on enforcement. Were the bankers who got rich making bad loans also political fundraisers?

How much bad debt is still out there? Where is it? How is it cleaned up? Does government give banks good money for bad loans? Do banks and bankers owe the taxpayer something for the right to borrow at 0% interest?

Do other country's governments guarantee bank deposits? Doing so puts taxpayers at risk. Doesn't it also give the government an obligation to protect deposits?

Your book mentions the S&L crisis of 1984. Didnt we learn back then that ratings agencies are paid by those they rate and this conflict of interest causes big problems?

Is it the purpose of Fannie Mae to transfer risk from the lender to the taxpayer? Should Fannie Mae be abolished?

Thank you for an interesting & useful book.

John

Yet another obfuscation of economics and history from yet another institutional news source. The commonality amongst all past economic crises was NOT "rapid deregulation." Economic crises are NOT a natural feature of free markets. Every economic bubble is created by some form of artificial (i.e. government enforced) credit expansion. There are no exceptions in history.

The "arrogance and ignorance" alluded to in this news story as the source of our current economic crisis is only made possible by the Federal Reserve and its government-enforced ability to create money out of nothing.

As an alternative to this nonsense, try "End the Fed" by Ron Paul.

Do you see any synergy of ideas or illumination between your book and Paul Kennedy's "Rise and Fall of the Great Powers"? I'm tempted to think both works speak to arrogance in the human spirit and its disastrous effects.

What have been the strongest voices in our lifetime of sanity? Who is making the case most powerfully? Who in US society and economy, even if they don't specifically address what you address, is leading the strongest charge to set things right?

Thank you very much!