The Lessons of History

Robert Z. Aliber and Charles P. Kindleberger
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Robert Z. Aliber: University of Chicago
Charles P. Kindleberger: Massachusetts Institute of Technology

Chapter 15 in Manias, Panics, and Crashes, 2015, pp 340-368 from Palgrave Macmillan

Abstract: Abstract The last four hundred years have been replete with financial crises, which often followed increases in the supplies of credit, greater investor optimism, and more rapid economic growth. More and more individuals purchased securities and assets for short-term profits from the increases in their prices. Households became wealthier as the market prices of securities and assets increased, and consumption spending grew. Business firms became more upbeat and invested more. The external indebtedness of many countries increased, and at a pace that was too rapid to be sustainable. The domestic counterpart of the rapid increase in the external indebtedness was that the domestic indebtedness of a group of borrowers in these countries increased at rates that eventually proved too rapid to be sustained. Economic booms followed and then euphoria developed. The increases in the supplies of credit led to sharp increases in the prices of securities and real estate to levels that proved too high to be sustainable.

Date: 2015
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DOI: 10.1007/978-1-137-52574-1_16

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