It’s Autumn Statement day here in the UK, bringing bleak economic forecasts from the Office of Budget Responsibility to underline the bleak economic forecasts from the OECD yesterday, not to mention ever-more apocalyptic musings about 1930s-style political extremism from the normally calm Gideon Rachman in the FT. I wondered if that data bible of the current debt crisis, Reinhardt and Rogoff’s [amazon_link id=”0691142165″ target=”_blank” ]This Time Is Different: Eight Centuries of Financial Folly[/amazon_link], would offer any consoling reflections.

Nope. Resolution of debt crises, they say, depends on a no-holds-barred debt sustainability exercise. This includes:

1. Include all government debt including implicit and contingent liabilities such as future pension and welfare payments;

2. Be realistic about growth prospects – do not be tempted to assume you can grow out of the problem. The UK might have low government debt yields compared to the Eurozone, but the potential growth rate seems lower still, maybe sub-2%;

3. As (1) and (2) are usually too hard to deliver, the likelihood is that the government debt overhang will be inflated away.

(Summarised on p289, 1st edition hardback)

No wonder the National Savings index linked products got snapped up the minute they went on sale, with savers hedging their bets, just in case Mr Osborne does not succeed in his efforts to bring down the UK’s deficit and debt levels. I think I’ll turn next to my shelf of books on endogenous growth and see if there’s any optimism to be gleaned there (see for starters my column with Paola Subacchi in yesterday’s FT). Then I’ll turn for light relief to the magisterial [amazon_link id=”0099506165″ target=”_blank” ]Life and Fate[/amazon_link] by Vassily Grossman, a tale of the 1930s.

[amazon_image id=”0691142165″ link=”true” target=”_blank” size=”medium” ]This Time Is Different: Eight Centuries of Financial Folly[/amazon_image]