Michael, this praise is unworthy of you, especially use of 'clear': that giveaway word that you are about to be bullshitted by an economist. There's nothing 'clear' about the kinds of correlations made in this infantile paper: to equity prices, current account deficits, GDP stagnation, public debt... there are so many multicollinearity problems here it's hard to know where to start. And so where are the *crucial* factors that have pulled reinvestable resources out of value circulation and into financial speculation? Declining rates of profit in manufacturing; the rise of inventories and general overaccumulation of fixed capital; political power shifts that give higher rates of return to finance via monetarism; stagnant wages that generate consumer pressure for credit innovation; new unregulated financial instruments; etc. etc.
> there have been 18 big banking crisis in advanced industrial
> countries.
>
Does that tell you anything about the respect Rogoff - former IMF chief economist - has for middle-income countries? Here's the sort of logic that you get from this lad: "While much praised at the time, 1970s petro-dollar recycling ultimately led to the 1980s debt crisis, which in turn placed enormous strain on money center banks." So the problem that in the process of working out the debt, more Third World people died early than - my educated guess - were killed by Hitler and Stalin put together, deserves not a remark here.
Here's their excuse: "In order to focus here on data most relevant to present U.S.situation, we do not consider the plethora of emerging market crises, nor industrialized country financial crises from the Great Depression or the 1800s." Pathetic. Much better from the mainstream is Barry Eichengren's 2000 study for the World Bank, which put all the debt cycles in historical perspective, at least.
> The only difference is that this time we recycled the
> money to a developing country in the US, namely the subprime borrowers.
> But the effect on the banks was the same.
>
Oh come on, pretty much *everyone* doing marxist work on finance these past couple of decades has made the point that the credit and portfolio investment system exacerbates uneven development whether within the US or globally.
It's junk like this paper that makes me grieve even more, that comrade Henwood has been so sanguine about financial crises... :-)