Tag Archives: Kenneth Rogoff

The march toward fiat money

Fiat money is “money that derives its value from government regulation or law. The term derives from the Latin fiat, meaning “let it be done” or “it shall be [money]”, as such money is established by government decree”.

The different types of money along history can be seen in this entry from the Wikipedia:

“Currently, most modern monetary systems are based on fiat money. However, for most of history, almost all money was commodity money, such as gold and silver coins. As economies developed, commodity money was eventually replaced by representative money, such as the gold standard, as traders found the physical transportation of gold and silver burdensome. Fiat currencies gradually took over in the last hundred years, especially since the breakup of the Bretton Woods system in the early 1970s.”

I found an interesting graphic in the book “This Time is Different” (C. Reinhart & K. Rogoff) where you can see how during several centuries governments debased or decreased the content of silver of its currency in order to get over heavy debts. The trend in the graphic seems to point at the “inevitability” of fiat money.

The march towards fiat money.

These debasements of course created inflation, which is nothing new, only the means have changed, as Carmen Reinhart and Kenneth Rogoff say in their book:

“[…] the shift from metallic to paper currency provides an important example of the fact that technological innovation does not necessarily create entirely new kinds of financial crises but can exacerbate their effects, much as technology has constantly made warfare more deadly over the course of history.”

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Filed under Economy

¿Cómo le ha ido a España en esta crisis?

Que España está inmersa una crisis seria no es noticia. Como tampoco lo es que algunas personas lo anunciaban antes de que la crisis en sí llegase.

Hace unos días terminé de leer el libro “This Time is Different”, escrito por los economistas Carmen Reinhart y Kenneth Rogoff, en el cuál leí sobre una anécdota que mencioné de la que escribí en este blog. El libro es una mirada exhaustiva a los distintos tipos de crisis financieras durante los últimos ocho siglos, cubriendo impagos de deuda pública, crisis bancarias, periodos de alta inflación, etc.

"This Time is Different", C. Reinhart & K. Rogoff.

En el libro hablan dan una larga lista de indicadores que permitían ver que la última crisis en la que nos encontramos iba a suceder y citan a varios autores que así lo predijeron. Achacan por tanto la crisis a fallos en la regulación y en las políticas que se aplicaron.

Pero no es de eso de lo que quiero hablar. Sumergidos ya en la crisis, ¿cómo son las crisis?

Tras revisar multitud de casos, los autores, investigan los episodios de crisis en economías avanzadas y emergentes antes y después de la Gran Depresión y la Segunda Guerra Mundial.

La caída tras una crisis:

  • La deuda crece en media un +86% (en términos absolutos) durante los 3 años siguientes a una crisis bancaria.

Aumento de la deuda durante las crisis.

  • Caída del precio de la vivienda en media de -35%, y un período de caída medio de 6 años.
  • Bolsa: la bolsa típicamente alcanza un máximo en el año anterior de la crisis y cae durante los siguientes 2-3 años hasta un -56% en media. La recuperación es prácticamente total tres después del año de comienzo de la crisis.

Evolución de la bolsa durante las crisis bancarias.

  • Crecimiento de la renta per cápita real: se ralentiza antes de la crisis, llegando a caer un -9% en el año de la crisis y los dos siguientes, volviendo a recuperarse en el tercer año.
  • Crecimiento medio de la tasa de desempleo durante casi 5 años hasta un +7% mayor en el valle (en el caso de la Gran Depresión, ese porcentaje se elevó al 16%).

¿Y cómo le ha ido a España en esta crisis?

  • La deuda había crecido un +69% desde 2007 hasta finales de 2010.
  • El precio medio de la vivienda según la Sociedad de Tasación ha caído un -18% desde 2007 hasta 2011.
  • El índice Ibex 35 alcanzó su máximo por encima de los 15.800 en otoño de 2007, cayendo un -56% hasta por debajo de 7.000 en marzo de 2009 (1.5 años después). Llegó a estar por encima de 12.000 en 2010, pero todavía hoy, 4 años y medio después de los máximos, no se ha recuperado (~8.600).
  • La renta per cápita ha caído un -4,6% desde finales de 2008 a finales de 2010.
  • La tasa de desempleo a finales de 2007 era de un 8.3%, alcanzando hoy el 22.85%, un aumento de la tasa de +14,5%.

Por desgracia, una crisis de manual, y en cuanto a las cifras de empleo especialmente drástica.


Filed under Economy

The Republic of Poyais

While I was in primary and high school, History never caught much my attention. And today is not otherwise in a broad sense, but I enjoy reading some historical notes on certain subjects.

I am reading these days the book “This Time is Different” (published in 2009), by Carmen Reinhart and Kenneth Rogoff (both Economics professors, the latter former economist at the IMF and member of the board of the Federal Reserve). As the description in Amazon says, the book is:

“[…] a comprehensive look at the varieties of financial crises, and guides us through eight astonishing centuries of government defaults, banking panics, and inflationary spikes–from medieval currency debasements to today’s subprime catastrophe. […]”

Being half way through it, I have had much fun with some anecdotes. I may write more about them in other posts, but in this one I want to focus in one I came across while reading the book (I have already shared it with some of you).

Let me take some excerpts from the Wikipedia:

Gregor MacGregor (24 December 1786 – 4 December 1845) was a Scottish soldier, adventurer, land speculator, and colonizer who fought in the South American struggle for independence. Upon his return to England in 1820, he claimed to be cacique of Poyais (also known as Principality of Poyais, Territory of Poyais, Republic of Poyais). Poyais was a fictional Central American country that MacGregor had invented which, with his help, drew investors and eventually colonists. […]

Gregor MacGregor went from Latin America to London, England, in 1820 and announced that he had been created cacique (highest authority or prince) of the Principality of Poyais, an independent nation on the Bay of Honduras. He claimed that native chieftan King George Frederic Augustus I of the Mosquito Shore and Nation had given him the territory of Poyais, 12,500 mile² (32,400 km²) of fertile land with untapped resources, a small number of settlers of British origin, and cooperative natives eager to please. He had created the beginnings of a country with civil service, army and democratic government. Now he needed settlers and investment and had come back to the United Kingdom to give people the opportunity.

At the time, British merchants were all too eager to enter the South American market that Spain had denied to them. The region had already become more promising in the wake of wars of South American independence, when the new governments of Colombia, Chile and Peru had issued bonds in London Royal Exchange to raise money. […]

In Edinburgh, MacGregor began to sell land rights for 3 shillings and 3 pence per acre (£0.16/acre or £40.15/km²). The average worker’s weekly wage at the time was about £1, which meant that the price was very generous. […] On 23 October 1822 MacGregor raised a loan with the total of £200,000 on behalf of the Poyais government. It was in the form of 2,000 bearer bonds worth £100 each. […]

You may read the rest of the story in the Wikipedia, but you can imagine it. Of course, Poyais defaulted on the debt issued, about 70 would-be settlers were sent to Latin America only to find that the wonderful Poyais did not exist. The group decided to come back to London. About 20 of them died in the trip and when they arrived to London about a year after departing MacGregor had already fled to France to proceed with similar schemes…

The Ponzi scheme of Madoff pales in the comparison to the one prepared by MacGregor. Beware when someone presents you with an opportunity too good to be true


Filed under Economy, Investing