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The Next Economic Disaster
Book

The Next Economic Disaster

Why It’s Coming and How to Avoid It

Richard Vague
University of Pennsylvania Press, 2014

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Editorial Rating

7

Qualities

  • Innovative

Recommendation

In fewer than 100 pages, author Richard Vague sets out to persuade you that the relative and absolute levels of privately held debt within a major economy can predict financial crises. Economic growth always includes the growth of private credit, but periodic booms push the economy out of sync and into crisis. Vague says he’s created an algorithm – not in the book but available online – that can predict these booms and busts, making them preventable. Additionally, he advocates for measures to restructure private-sector loans that would bring borrowers and the economy quickly back to normal after crashes. Though some of his arguments could use greater elucidation and sourcing, and some of his proposals seem contradictory, getAbstract suggests this concise work to those curious about the potential causes and cures of financial crises.

Take-Aways

  • Research shows that booms in private credit have preceded nearly all financial crises.
  • Economic growth always includes some growth in credit to businesses and households.
  • When an economy has private debt growth of 18% or more of GDP growth over five years – with high absolute private debt levels (150% of GDP) – a crisis is likely.

About the Author

Richard Vague, a former banker, is currently a managing partner of Gabriel Investments and the chairman of the Governor’s Woods Foundation, a philanthropic enterprise.

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