The cover story in the latest issue of CentrePiece, a publication of the Centre for Economic Performance (CEP) of the London School of Economics, has the eye-opening title The Doomsday Cycle. Co-authored by Peter Boone of the CEP and Simon Johnson, a professor Sloan School of Management, MIT, the article examines the stunning record of regulatory failure since 1980.

I was immediately struck by their chart showing private sector credit/GDP ratio and the Fed Funds Target rate since 1980. The chart is annotated with four financial fiascos: the S&L Crisis, the LTCM Bailout, the Tech Bubble, and the Subprime Bubble. Regular visitors to this website know me well enough to know — I couldn't resist the urge to add an overlay the S&P 500.

● Doomsday Chart
● with S&P 500 overlay

The immediate question on everyone's mind is "Where do we go from here?" The authors believe that "The real danger is that as this cycle continues, the scale of the problem is getting bigger. If each cycle requires greater and greater public intervention, we will surely eventually collapse." They conclude with this unpleasant observation: "Last year, we came remarkably close to collapse. Next time, it may be worse. The threat of the doomsday cycle remains strong and growing."

Boone and Johnson offers suggestions for reform, but, given our track record and the officials in charge, they see little hope for sustained, effective financial regulation.

The article is reprinted here at the voxeu.org website, or you can download a PDF of the CEP published version here. I used the chart in the Vox reprint for the overlay.