Next US financial crisis could look like the last

This is the second part of a three-part series

During the last financial crisis, Carmen Reinhart and Kenneth Rogoff, both now teaching at the Charles River campus of Plagiarism University, wrote an engagingly readable and well-received book, This Time is Different (2009), describing ways in which debt boom and default cycles have varied little since the Middle Ages.

The most amusing of these similarities is that those who profit most from each such cycle’s bubble phase sustain it by assuring the gullible that this debt bubble, unlike all its predecessors, will not end badly – that this time is different.

Reinhart’s and Rogoff’s warning seems best appreciated as reverse-reprising Tolstoy’s bon mot, in “Anna Karenina”, that although “all happy families are alike, every unhappy family is unhappy in its own way.”

Although all debt bubbles end unhappily, the happy thoughts used to assure each bubble’s victims that it will not end unhappily must differ enough from the happy thoughts used to sustain recent previous bubbles to seem credible, at least to the gullible.

If a US financial crisis occurs in 2024, it will be novel in certain ways. Of these, the most widely anticipated is that it will occur electronically. Fear that fast transactions via the Internet and “disinformation” via insufficiently censored electronic media might cause bank runs to spread rapidly have recently troubled elites both in the US and Europe.

Less widely discussed is the possibility that the alienation of customers by the growing electronic automation of financial institutions could aggravate a financial crisis.

During the past decade, bankers and brokers have increasingly hidden from depositors behind websites that often function poorly and phone