Book Review: A Decade Of Debt

by: David Merkel, CFA

This is a short book that in some ways is a summary of Reinhart and Rogoff’s greater work This Time Is Different: Eight Centuries of Financial Folly. Think of it as an executive summary in book form. How short is it? Less than 160 pages, but in terms of text there’s less than 40 pages of text in this 6″ x 9″ book, so it’s a fast read.

Graphs occupy the remainder of the book, with the latter two-thirds of the book going nation-by-nation, allocating 1-3 pages to each, showing Debt/GDP, and the various sorts of financial crises they have faced.

Main Findings

1) When debt to GDP ratios get above 90%, growth rates fall by 1%.

2) Emerging markets fare worse than developed market on point #1.

3) There’s no relation in the short run regarding public debt and inflation in developed nations.

Other Findings

1) Many nations default continually… I allege cultural problems, but I am willing to be corrected.

2) Banking crises were normal in developed nations prior to WWII.

3) Private debts surge prior to banking crises. This is normal, when banks lend aggressively, they lend badly.

4) When there are banking crises, other crises tend to occur. No surprise, because restrictions in bank lending leads to difficulties in those seeking financing.

5) Banking crises are associated with sovereign debt crises.

6) Public borrowing follows a repeated boom/bust cycle, particularly in developing markets.

7) Like Michael Pettis’ book, The Volatility Machine: Emerging Economics and the Threat of Financial Collapse, short-term debts tend to accelerate prior to crises in developing markets.

8 ) Public credit ends to absorb private debts after the crisis erupts.

This is a good book, it summarizes the dangers that come from high national debt levels. The graphs in the back are a handy reference to the debt histories and crises of most major nations.



Who would benefit from this book: I think every serious investor and thinker on economics should be familiar with the findings of Reinhart and Rogoff. If you want to, you can buy it here: A Decade of Debt (Policy Analyses in International Economics).

Full disclosure: I purchased this book with my own money.