This is the Cato Daily Podcast for Thursday, June 17th, 2010.

I'm Caleb Brown.

The seeds of financial crisis are sown early, but seeing that crisis looming during a boom

is always a challenge, and even knowing the bubble

is going to burst at some point in the near future it's not always enough to get you to

take your profits and get out. Carmen Reinhart is co-author of the book,

This time is different, eight centuries of financial folly.

She says the US is now at the stage

where we're denying underlying problems in our economy crisis notwithstanding.

In your book you go through hundreds of years of financial crises and for somebody with that historical knowledge who had lived

hundreds upon hundreds of years and had perfect memory of all of these

previous financial crises what would they have identified that most participants, ground-level

participants in the financial crisis did not identify?

I would say that there were several tangible indicators that you could identify and then there was yet another that is less tangible.

Let me talk about the tangible first. The tangible is in the early stages.

Before a famine, usually you have a good feast.

And the early, the seeds for the famine are sown during the feast and part of the story is that you have a period of very lax credit that can fuel booms in acid prices, housing and equity.

But what kinds of indicators should you be seeing?

Well you should be seeing very rapidly rising acid prices, but with a very rapidly rising credit

Another word of saying that is indebtedness is rising.

That indebtedness isn't entirely homegrown.

You import it also from abroad, you borrow from the rest of the world.

...