This Time Is Different : Eight Centuries of Financial Folly

by Reinhart, Carmen M; Rogoff, Kenneth S.

• ISBN13: 9780691142166
• ISBN10: 0691142165
• Format: Hardcover
• Copyright: 2009-09-11
• Publisher: Princeton Univ Pr

Summary

Throughout history, rich and poor countries alike have been lending, borrowing, crashing--and recovering--their way through an extraordinary range of financial crises. Each time, the experts have chimed, "this time is different"--claiming that the old rules of valuation no longer apply and that the new situation bears little similarity to past disasters. This book proves that premise wrong. Covering sixty-six countries across five continents, This Time Is Different presents a comprehensive look at the varieties of financial crises, and guides us through eight astonishing centuries of government defaults, banking panics, and inflationary spikes--from medieval currency debasements to today's subprime catastrophe. Carmen Reinhart and Kenneth Rogoff, leading economists whose work has been influential in the policy debate concerning the current financial crisis, provocatively argue that financial combustions are universal rites of passage for emerging and established market nations. The authors draw important lessons from history to show us how much--or how little--we have learned. Using clear, sharp analysis and comprehensive data, Reinhart and Rogoff document that financial fallouts occur in clusters and strike with surprisingly consistent frequency, duration, and ferocity. They examine the patterns of currency crashes, high and hyperinflation, and government defaults on international and domestic debts--as well as the cycles in housing and equity prices, capital flows, unemployment, and government revenues around these crises. While countries do weather their financial storms, Reinhart and Rogoff prove that short memories make it all too easy for crises to recur. An important book that will affect policy discussions for a long time to come, This Time Is Different exposes centuries of financial missteps.

Author Biography

Carmen M. Reinhart is professor of economics at the University of Maryland. She recently coedited "The First Global Financial Crisis of the 21st Century" and is a regular lecturer at the International Monetary Fund and the World Bank. Kenneth Rogoff is the Thomas D. Cabot Professor of Public Policy and professor of economics at Harvard University. He is the coauthor of "Foundations of International Macroeconomics", and a frequent commentator for NPR, the "Wall Street Journal", and the "Financial Times".

Table of Contents

List of Tables	p. xiii
List of Figures	p. xvii
List of Boxes	p. xxiii
Preface	p. xxv
Acknowledgments	p. xxxvii
Preamble: Some Initial Intuitions on Financial Fragility and The Fickle Nature of Confidence	p. xxxix
Financial Crises: An Operational Primer	p. 1
Varieties of Crises and Their Dates	p. 3
Crises Defined by Quantitative Thresholds: Inflation, Currency Crashes, and Debasement	p. 4
Crises Defined by Events: Banking Crises and External and Domestic Default	p. 8
Other Key Concepts	p. 14
Debt Intolerance: The Genesis of Serial Default	p. 21
Debt Thresholds	p. 21
Measuring Vulnerability	p. 25
Clubs and Regions	p. 27
Reflections on Debt Intolerance	p. 29
A Global Database on Financial Crises with a Long-Term View	p. 34
Prices, Exchange Rates, Currency Debasement, and Real GDP	p. 35
Government Finances and National Accounts	p. 39
Public Debt and Its Composition	p. 40
Global Variables	p. 43
Country Coverage	p. 43
Sovereign External Debt Crises	p. 49
A Digression on the Theoretical Underpinnings of Debt Crises	p. 51
Sovereign Lending	p. 54
Illiquidity versus Insolvency	p. 59
Partial Default and Rescheduling	p. 61
Odious Debt	p. 63
Domestic Public Debt	p. 64
Conclusions	p. 67
Cycles of Sovereign Default on External Debt	p. 68
Recurring Patterns	p. 68
Default and Banking Crises	p. 73
Default and Inflation	p. 75
Global Factors and Cycles of Global External Default	p. 77
The Duration of Default Episodes	p. 81
External Default through History	p. 86
The Early History of Serial Default: Emerging Europe, 1300--1799	p. 86
Capital Inflows and Default: An "Old World" Story	p. 89
External Sovereign Default after 1800: A Global Picture	p. 89
The Forgotten History of Domestic Debt and Default	p. 101
The Stylized Facts of Domestic Debt and Default	p. 103
Domestic and External Debt	p. 103
Maturity, Rates of Return, and Currency Composition	p. 105
Episodes of Domestic Default	p. 110
Some Caveats Regarding Domestic Debt	p. 111
Domestic Debt: The Missing Link Explaining External Default and High Inflation	p. 119
Understanding the Debt Intolerance Puzzle	p. 119
Domestic Debt on the Eve and in the Aftermath of External Default	p. 123
The Literature on Inflation and the "Inflation Tax"	p. 124
Defining the Tax Base: Domestic Debt or the Monetary Base?	p. 125
The "Temptation to Inflate" Revisited	p. 127
Domestic and External Default: Which Is Worse? Who Is Senior?	p. 128
Real GDP in the Run-up to and the Aftermath of Debt Defaults	p. 129
Inflation in the Run-up to and the Aftermath of Debt Defaults	p. 129
The Incidence of Default on Debts Owed to External and Domestic Creditors	p. 133
Summary and Discussion of Selected Issues	p. 136
Banking Crises, Inflation, and Currency Crashes	p. 139
Banking Crises	p. 141
A Preamble on the Theory of Banking Crises	p. 143
Banking Crises: An Equal-Opportunity Menace	p. 147
Banking Crises, Capital Mobility, and Financial Liberalization	p. 155
Capital Flow Bonanzas, Credit Cycles, and Asset Prices	p. 157
Overcapacity Bubbles in the Financial Industry?	p. 162
The Fiscal Legacy of Financial Crises Revisited	p. 162
Living with the Wreckage: Some Observations	p. 171
Default through Debasement: An "Old World Favorite"	p. 174
Inflation and Modern Currency Crashes	p. 180
An Early History of Inflation Crises	p. 181
Modern Inflation Crises: Regional Comparisons	p. 182
Currency Crashes	p. 189
The Aftermath of High Inflation and Currency Collapses	p. 191
Undoing Domestic Dollarization	p. 193
The U.S. Subprime Meltdown and the Second Great Contraction	p. 199
The U.S. Subprime Crisis: An International and Historical Comparison	p. 203
A Global Historical View of the Subprime Crisis and Its Aftermath	p. 204
The This-Time-Is-Different Syndrome and the Run-up to the Subprime Crisis	p. 208
Risks Posed by Sustained U.S. Borrowing from the Rest of the World: The Debate before the Crisis	p. 208
The Episodes of Postwar Bank-Centered Financial Crisis	p. 215
A Comparison of the Subprime Crisis with Past Crises in Advanced Economies	p. 216
Summary	p. 221
The Aftermath of Financial Crises	p. 223
Historical Episodes Revisited	p. 225
The Downturn after a Crisis: Depth and Duration	p. 226
The Fiscal Legacy of Crises	p. 231
Sovereign Risk	p. 232
Comparisons with Experiences from the First Great Contraction in the 1930s	p. 233
Concluding Remarks	p. 238
The International Dimensions of the Subprime Crisis: The Results of Contagion or Common Fundamentals?	p. 240
Concepts of Contagion	p. 241
Selected Earlier Episodes	p. 241
Common Fundamentals and the Second Great Contraction	p. 242
Are More Spillovers Under Way?	p. 246
Composite Measures of Financial Turmoil	p. 248
Developing a Composite Index of Crises: The BCDI Index	p. 249
Defining a Global Financial Crisis	p. 260
The Sequencing of Crises: A Prototype	p. 270
Summary	p. 273
What Have We Learned?	p. 275
Reflections on Early Warnings, Graduation, Policy Responses, and the Foibles of Human Nature	p. 277
On Early Warnings of Crises	p. 278
The Role of International Institutions	p. 281
Graduation	p. 283
Some Observations on Policy Responses	p. 287
The Latest Version of the This-Time-Is-Different Syndrome	p. 290
Data Appendixes	p. 293
Macroeconomic Time Series	p. 295
Public Debt	p. 327
Dates of Banking Crises	p. 344
Historical Summaries of Banking Crises	p. 348
Notes	p. 393
References	p. 409
Name Index	p. 435
Subject Index	p. 443
Table of Contents provided by Ingram. All Rights Reserved.