Introducing the Reinoff scale
In 2009 Reinhart & Rogoff wrote a mighty tome of a book called “This time is different” based on 800 years of data on financial crises covering more than 90 countries. It was a thorough and objective assessment of sovereign and banking crises, especially detailed on the last 200 years.
The book puts forward a causal model showing how regulatory conditions (of private credit creation) relate to the occurrence of banking crises and potential knock-on effects . Adapting their model (p. 271) we get a succession of crisis phases:
1) Financial liberalisation
2) Asset speculation
3) Banking crisis
4) Currency crash
5) Rising inflation
6) Sovereign Default
7) High inflation / currency collapse
For argument’s sake, let’s call this the Reinoff scale. Here’s an approximation of the course of events for the UK economy:
1) Financial liberalisation: 1997-2000
2) Asset speculation: 1999-2008
3) Banking crisis: 2007/8
4) Currency crash: 2008/9
5) Rising inflation: 2010-2011
6) Sovereign Default: 2012?
7) High inflation / currency collapse: 2013?
I’d place our current score on the Reinoff scale at about 5.1, Inflation is picking up momentum, and the Gvt is certainly making inroads to covertly “default” on various obligations (c.f. public sector pensions).
For chart lovers amongst you I’ll put this in to a time-line graph and publish shortly. I’ll also aim to track the UK, and maybe a few other countries too on an ongoing basis.