MACMILLAN The Financial Crisis Reconsidered: The Mercantilist Origin of Secular Stagnation and Boom-Bust Cycles

In The Financial Crisis Reconsidered, Aronoff challenges the conventional view that reckless credit produced the US housing boom and the financial crisis, explaining how the large current account deficit, and its mercantilist origin, was a more fundamental cause. He also demonstrates that the decision to provide relief for bank creditors rather than underwater homeowners was responsible for the prolonged recession that followed the crisis.Aronoff proposes a novel theory to account for the ultimate origins of secular stagnation and economic volatility. He shows how accumulation, which occurs when a person or country earns more than it ever plans to spend, generates both an excess of saving and a deficiency in demand. While savings provide the funds to promote booms, under-consumption ensures that these booms will turn bust and that the economy will fall short of its potential growth rate. Aronoff argues that mercantilists and top income earners engage in accumulation, and that the influence of both types has grown in recent decades. Combining economic theory and historical narrative, this book offers a new perspective of the housing boom and the financial crisis, concluding with innovative policy proposals to reduce accumulation without compromising the benefits of a market economy. Review Jose Luis Oreiro Associate Professor of Economics, University of Brasilia, Brazil REVIEWER GUIDELINESAt Palgrave Macmillan the peer review system is an integral part of the book submission and evaluation process. The peer review system ensures that published research is rigorous and meets the international standards set by each discipline. We engage in a collaborative refereeing process which ensures that the work submitted is evaluated and commented upon by independent experts within the relevant field(s). The feedback is then shared with the author; however, the reviewer's name is not disclosed unless specifically requested by the reviewer. With these points in mind, we would be grateful for your feedback on the project. Please feel free to structure your comments as you see fit (either as a single body of text, or as answers to some or all of the following questions), but please ensure the topics below are covered.General1)In your own words, please provide a short outline of the project. The objective of the project is to provide a new explanation about the causes of the 2008 financial crisis in USA. According to the author the main cause of the magnitude of the bubble in the US housing market and the financial crisis that erupted after the bubble burst was the huge current account deficit of American economy that was financed, mainly, by huge capital inflows. These inflows of foreign capital produced a decrease in the long-term interest rate of safe assets in USA, inducing commercial and investment banks, insurance companies and other financial institutions to seek for bigger returns in the subprime mortgage markets. Project 2)Does this proposal offer a useful and/or original contribution to the field? Is it addressing any new/emerging areas? Yes, the proposal is an original and useful contribution for the literature about the causes of 2008 financial crisis. 3)Does it adequately engage with recent scholarship? Does it take existing scholarship forward? Yes the proposal make a good review of the literature about the causes of 2008 financial crisis, and make an important improvement in our understanding about the economic mechanisms that fuelled the bubble in the housing market and the credit expansion behind it. 4)What are the strengths and weaknesses of the proposal? You may wish to consider structure, organization, coherence and presentation of material; scope, coverage and breadth of appeal or degree of specialization; whether there are any obvious omissions; timeliness and likely shelf-life of the research; what proportion of the work, if any, will require substantial re-working; and whether any s