Recessions may differ in depth and length, but a recent book — This Time Is Different — Eight Centuries of Financial Folly, by Carmen N. Reinhart and Kenneth S. Rogoff — finds no significant difference in eight centuries of financial folly. In each case, however, those engaged were able to convince themselves that their situation was unique.

For example, there was a housing bubble (and banking panic) in 1907 — a century before the sub-prime crisis of 2008. Real housing prices in the U.S. stayed below 75 percent of the 2001 value for almost all the years between1891 and 1977.

In 2007, there was a 45 percent decline in U.S. peak-to-trough real equity prices, lasting a year. This compared with a historical average of 55.9 percent, and a duration of 3.4 years.

Reinhart and Rogoff are well-equipped to assess the situation. Reinhart is the Dennis Weatherstone Senior Fellow at the Peterson Institute for International Economics. Previously, she was Professor of Economics and Director of the Center for International Economics at the University of Maryland. Rogoff is currently the Thomas D. Cabot Professor of Public Policy and Professor of Economics at Harvard University.

The U.S. Federal Reserve faces a dilemma after two rounds of quantitative easing — can it raise interest rates to curb inflation without dampening the still-fragile economic recovery? As we face a step-up in inflation, it is instructive to see that the inflation rate around the world ran 20 percent or higher between 1500 and 1790, 1800 to 1913, and 1914 to 2008. In the United States, between 1720 and 1791 for 7.6 percent of years, the rate exceeded 20 percent, and 40 percent for four years.

Looking at past cycles of unemployment and banking crises, the historical average trough-to-peak increase was 7 percent, with a duration of 4.8 years. In the United States, during the Great Depression, unemployment was 22 percent for 4 years. In the present recession, unemployment has exceeded 7 percent since December 2008.

Debt crises involving sovereign default on debt have been recurring. Before the 1930s, the thinking was that there would never again be a world war, and the 1920s were a period of buoyant global optimism. But the market crash in 1929 was followed by global deflation and the largest wave of defaults in history. Another round in the 1980s was preceded by OPEC’s run-up in oil prices, higher interest rates and a collapse in commodity prices. Mexico defaulted in August 1983, followed by the default in a dozen emerging markets including Argentina, Brazil and Turkey. In the 1990s, Asia had a debt crisis followed by Latin America in 1990s to early 2000s.

Egypt defaulted on external debt in 1984, when its ratio of external debt to GDP was 112 percent. Today, the European Community is grappling with how to deal with Greece, where the debt to GDP ratio was 140 percent in 2010, now spiraling toward 170 percent. Last year’s €110 billion bailout didn’t solve the problem and Greece is seeing riots in the streets as it attempts to impose austerity measures, while preparing to ask for another bailout of €120 billion. There are calls for Greece to exit the eurozone, as the euro weakens against the dollar. Ireland and Portugal, which have already received bailout packages from the European Union and the International Monetary Fund, and Spain may be facing a similar prospect down the road.

This book is very well documented and often mentioned by panels of economists. It is highly recommended.

This Time Is Different — Eight Centuries of Financial Folly, Carmen N. Reinhart and Kenneth S. Rogoff, Princeton University Press, 2009, $35.00.

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