This Time Is Different: Eight Centuries of Financial Folly Read online

Czechoslovakia, banking crises in, 358t

  Czech Republic, banking crises in, 359t

  dark matter, 212, 404n22

  data, 34–47

  on asset prices, 8

  on banking crises, 10, 141–42

  country coverage of, 43–47, 45–46t

  on currency debasement, 36–37

  for early warning system, 277–78

  on exchange rates, 36–37, 189

  on exports, 38–39

  future needs in, 278–79

  on GDP, 37–38, 120

  global variables in, 43

  international institutions’ role in, 278, 281–82

  on national accounts, 39–40

  on prices, 35–36

  on public finances, 39

  sources of, 34–35

  traditional approach to, xxvii–xxviii

  data, on public debt, 40–42

  domestic, 40–41, 101, 103, 110, 340–43t

  external, 40–42

  gaps in, xxxi, xxxiii–xxxiv, xliv, 34, 137–38, 281–82

  international institutions’ role in, 278, 281–82

  sources on, 327–43

  total, 41–42, 330–34t

  database, global, xxvii–xxviii, 35

  dating, 3–4

  of asset price bubble collapses, 7–8

  of banking crises, 8–10, 11t, 344–47t, 407n26

  of currency debasements, 6–7

  of domestic default, 11t

  of exchange rate crises, 5–6

  of external default, 10–13, 11t, 22, 23t

  of inflation crises, 4–5. See also duration

  debasement. See currency debasements

  debentures: data on, 42, 328–29t

  definition of, 42

  debt. See specific types

  debt accumulation: appearance versus reality of threats posed by, xxv

  short-term versus long-term, in debt intolerance, 31–32

  systemic risks of, xxv

  debt collection, through military force, 54–55. See also repayment

  debt crises (defaults), 51–67

  avoidability of, 61

  conditions before and after (See aftermath; run-up)

  definition of, xxvi, 61–63

  distribution of, xxvi–xxvii

  early period of, 54

  in financial turbulence index, 250

  illiquidity versus insolvency in, 59–61

  incentives for avoiding, 54–58, 65–67

  incidence of, xxvi–xxvii, 67, 133–36

  odious debt in, 63–64

  partial (See partial default)

  recommendations on responses to, 289

  reschedulings as type of, 62, 90–92

  theoretical underpinnings of, 51–67

  time between, 67, 83

  total/complete, 61. See also specific events and types

  debt crisis of 1980s: contagion of, 246

  repayment of debts in, 51–52

  severity of, 256

  this-time-is-different syndrome in, 17–18

  debt crisis of 1990s: international institutions in, 94

  this-time-is-different syndrome in, 19. See also Asian crises of 1997–1998

  debt-deflation theory, 76

  debt intolerance, 21–33

  clubs in, 27–29, 29f

  components of, 25–29

  definition of, 21

  and domestic public debt, 119–23

  fiscal stimulus packages and, 33

  graduation from, 28–30, 33, 193

  implications of, 29–33

  institutional failings in, 30–31

  Institutional Investor ratings in, 26–29, 27t, 29f

  ratios of external debt to exports in, 22, 23t, 24, 26, 27t

  ratios of external debt to GDP in, 21–29, 23t, 24t, 25f, 27t, 33, 121, 122f

  recovery from, 29–30, 33

  regions of, 27–29, 29f

  in serial default, 21, 29–33

  thresholds in, 21–25, 32–33, 119–20

  vulnerability, 25–29

  debt markets: domestic, 65–67, 103–5

  international, 68, 69b–71b

  debtors’ club, 27–29, 29f, 284–87

  debt repayment. See repayment

  debt reversals: Brady bonds in, 83b–85b

  identification of episodes of, 84b

  debt stock, data on, 42

  debt thresholds: in debt intolerance, 21–25, 32–33, 119–20

  IMF on, 394n6

  debt transfer, odious debt doctrine on, 63–64

  default. See debt crises

  default virgins, 44, 45–46t

  deflation, 76

  democracies, domestic public debt in, 65–66

  Denmark: banking crises in, 141, 359–60t

  inflation crises in, 185

  deposit insurance: in banking crises, 143, 144–45

  and crises of confidence, xl–xli

  depreciation. See exchange rate crises

  derivative contracts, 31–32, 172, 211

  developing countries, middle-income versus low-income, 394n3. See also emerging market(s)

  Dionysius of Syracuse, 174–75

  disinflations, de-dollarization in, 191, 192f

  Djibouti, banking crises in, 360t

  dollarization, 191–97

  debt intolerance and, 33

  definition of, 33, 191

  of domestic debt, 109b

  after inflation crises, 180, 191–93, 192f

  liability, 109b, 191

  persistence of, 191–93, 192f

  undoing of, 191, 193–97

  domestic dollarization. See dollarization

  domestic public debt, xxxi–xxxii, 103–27

  average share of, in total debt, 41, 103–5, 104f, 105f

  caveats regarding, 111–18

  data on, 40–41, 101, 103, 110, 340–43t

  definition of, xxxi, 9b, 64, 65

  before and after external default, 123–24, 123f

  foreign currency–linked, 9b, 64, 106–8, 108b–109b

  ignoring of, in literature, xxxi, 109b, 110, 119, 124–25, 136–37

  in inflation crises, 119, 124–27, 126t

  interest rates on, 106, 107t

  lack of transparency in, xxxi, 101, 137–38

  maturity structure of, 105–6, 106f, 127, 400n11

  repression and, 66–67, 106, 117

  domestic public debt crises (default), 110–18

  after 1750, 110–11, 112–16t

  banking crises as form of, 143

  data on, 40, 111

  debt intolerance and, 119–23

  de facto forms of, 111–17

  definition of, 11t, 13–14

  versus external default, seniority of, 128–38, 272

  GDP before and after, 129, 130f, 132–33, 132t

  incentives for avoiding, 65–67, 110–11

  incidence of, xxxi–xxxii, 65, 111, 128, 133–36, 134f, 135t

  through inflation, 65, 111–17, 175

  inflation before and after, 129–33, 131f, 132t

  magnitude of, 128–29

  percentage of countries in (1900–2008), 111, 117f

  in sequencing of crises, 272

  theoretical underpinnings of, 64–67, 110

  Dominican Republic: banking crises in, 360t

  Brady bonds in, 83b–84b

  external default by, 83b, 92, 98

  dual exchange rate systems, 403n9

  duration: of aftermath of crises, 224

  of exchange rate crises, 6

  of external defaults, 12–13, 80f, 81–83, 98

  of Great Depression versus postwar crises, 234–37, 234f, 236f

  of inflation crises, 4

  international institutions’ impact on, 81–83. See also dating

  early warning system, 277–81

  data needed for, 277–78

  housing prices in, 279–81

  signals approach to, 279–81, 280t, 408n3. See also indicators

  Eas
tern Europe: banking crises in, 206

  contagion of crises in, 246

  financial turbulence index for, 256

  Economic Affairs, UN Department of, 41, 124f

  economic factors, global: in data, 43

  in external defaults, 77–81

  economic growth: after banking crises, 165, 165f, 166f

  debt intolerance and, 30–32

  in debt reversals, 83b–84b

  economic theory, 51–67

  on banking crises, 143–47

  on confidence, xxxix–xlv

  on domestic public debt, 64–67, 110

  on external public debt, 51–64

  on odious debt, 63–64

  Ecuador: banking crises in, 360–61t

  Brady bonds in, 84b, 85b

  external default by, 22, 23t, 94

  Egypt: banking crises in, 361t

  British invasion of, 54

  as British protectorate, 81, 83b

  debt reversals in, 84b

  de-dollarization in, 403n10

  external default by, 81, 92

  elections, presidential, 53

  El Salvador, banking crises in, 361t

  EMBI. See Emerging Market Bond Index

  emerging market(s): banking crises in, xxvi–xxvii, xxxii, 141–42, 147–55, 167–69, 223–24

  debt intolerance in (See debt intolerance); debt thresholds of, 21–25, 32–33

  defaults of 1930s in, 15–17

  domestic public debt in, xxxi

  external default in, xxx

  financial turbulence index for, 256–57

  fiscal stimulus packages in, 33

  in middle-income versus low-income countries, 394n3

  serial default in, xxvii

  this-time-is-different syndrome in, 15–17

  transition to advanced economies, 283

  unemployment rates in, 228–29. See also specific countries

  Emerging Market Bond Index (EMBI), 280t, 395n8

  enforcement of debt repayment: colonial, 54

  legal approach to, 53, 56–57

  military force in, 54–55

  reputation approach to, 55–58, 65

  supranational, lack of, 53

  England: currency debasement in, 87, 175

  domestic debt repayment by, 65

  domestic default by, 87

  external debt repayment to Italy by, 55, 56, 57, 69b–70b

  external default before 1800 by, 70b, 87–89, 87t

  Glorious Revolution in, 65, 70b

  international debt markets in, development of, 69b–70b

  in Latin American capital markets, 93b–94b. See also Britain; United Kingdom

  Equatorial Guinea, banking crises in, 362t

  equilibrium/equilibria: default versus no-default, 60–61

  multiple, xlii–xliii, 60–61, 67, 144

  equity prices: in aftermath of crises, 226, 228f

  and banking crises, 161–62, 161f, 218, 218f, 226, 228f

  bursting of bubbles in, 7–8

  data on, 326t

  duration of downturns in, 226

  in financial turbulence index, 250

  in global financial crises, 262

  in Second Great Contraction, 239

  Eritrea, banking crises in, 362t

  Estonia, banking crises in, 362t

  Ethiopia, banking crises in, 362t

  Europe: banking crises in, 147, 149t, 152t, 154t

  currency debasement in, 175–79, 176t, 177t, 178f

  data coverage of, 43, 45–46t

  domestic public debt in, 104f

  external default in (See European external default); GDP during global crises, 262

  housing prices in, 244

  inflation crises in, 182, 183t, 185, 186t, 187, 188f

  trade during global crises, 264. See also specific countries

  European external default, xxx

  before 1800, 86–89, 87t

  in 1800s, 91t, 92

  in 1900s and 2000s, 94, 96t

  countries with no history of, 44, 45–46t

  time spent in, since independence, 98, 99t

  exchange rate(s): crises of confidence in, xliii–xliv

  data on, 36–37, 189, 301–5t

  dual, 403n9

  fixed, xliii–xliv, 272–73

  in sequencing of banking crises, 271–73

  after U.S. subprime crisis, 222, 405n33

  exchange rate crises (currency crashes), 189–97

  aftermath of, 191–93

  banks affected by, 145

  confidence in, xliii–xliv

  definition of, xxvi, 5–6, 7t

  duration of, 6

  in financial turbulence index, 256

  graduation from, 284

  indicators of, 279–81, 280t

  inflation associated with, 180, 189–97, 272, 400n2

  prevalence of, xxxiii

  in sequencing of banking crises, 272–73

  execution, of creditors in France, 87

  expenditures, government, sources of data on, 314–19t

  exports: data on, 38–39, 320–22t

  in global financial crises, 264, 266, 266f, 267f, 269–70

  ratios of external debt to, 22, 23t, 24, 26, 27t. See also trade

  external private debt: in debt intolerance, 26

  recent rise of, 399n4

  external public debt: data on, 40–42, 328–39t

  in debt intolerance, 21–26

  definition of, 9b, 13

  development of markets for, 69b–71b

  interest rates on, 106, 107t

  external public debt crises (default), xxix–xxxi, 68–100

  before 1800, 86–89, 87t

  in 1800s, 89–92, 91t, 400n6

  in 1900s and 2000s, 92–100, 95t

  in aftermath of crises, 232–33, 233f

  banking crises associated with, 73–75, 74f, 232–33, 233f

  clustering of, 92, 94, 100

  connections between episodes of, 94–95

  countries with no history of, 44, 45–46t

  cycles and patterns of, 68–73, 77–81, 92, 94

  dating of, 10–13, 11t, 22, 23t

  debt ratios at time of, 120, 120t, 121f

  definition of, 10–13, 11t, 68

  versus domestic default, seniority of, 128–38, 272

  domestic public debt in, 119–24, 127

  duration of, 12–13, 80f, 81–83, 98

  GDP before and after, 129, 130f, 132–33, 132t

  global economic factors in, 77–81

  incidence of, xxix–xxxi, 133–36, 134f, 135t, 147

  indicators of, 73–81

  inflation associated with, 75–77, 76f, 175, 400n2

  inflation before and after, 129–33, 131f, 132t

  lull in, from 2003 to 2009, 68, 71, 239

  magnitude of, 128–29

  in middle-income countries, 22, 23t

  percentage of countries in (1800–2008), xxxivf, xxxv, 68–73, 72f

  restructuring in, 12, 83b–85b

  in sequencing of crises, 272

  serial (See serial default)

  theoretical underpinnings of, 51–64

  universality of, xxx–xxxi, 86

  vulnerability to (See debt intolerance)

  external public debt ratios: to exports, 22, 23t, 24, 26, 27t

  to GDP, 21–29, 23t, 24t, 25f, 27t, 33, 121, 122f

  to revenue, 120–23, 120t, 121f, 122f

  fairness, in odious debt doctrine, 64

  fatigue, inflation, 106

  FDI. See foreign direct investment

  Federal Reserve, U.S.: and equity prices, 218

  on housing prices, 212–13

  lack of transparency in, 282

  in Second Great Contraction, 146

  target policy interest rate of, 43

  in this-time-is-different syndrome, 291

  fiat currency, 5, 35, 44, 179. See also paper currency

  financial centers: data on, 323t

  in definition
of global financial crisis, 260b

  financial crises, 3–20

  clustering of, xxvi, 145

  conditions before and after (See aftermath run-up)

  confidence in, role of, xxxix–xlv

  cycles of, length of, xxvii–xxviii

  damage caused by, xxix, xliv–xlv

  definitions of, 3–14

  early warning system for, 277

  economic theory on, xxxix–xlv

  indicators of (See indicators)

  narrative versus quantitative approach to, xxvii

  similarities among, xxv, 224–25

  types of, xxvi, 249

  unpredictability of, xxix, xlii–xliii. See also specific events and types

  financial crisis of the late 2000s. See Great Contraction, Second

  financial fragility, xxxix–xlv, 292

  financial institutions, number of, before and after crises, 162, 163f

  financial sector: growth of, in run-up to subprime crisis, 210

  international regulation in, 145

  overcapacity bubbles in, 162

  in sequencing of banking crises, 271–72

  shrinkage of 2008–2009 in, 162

  this-time-is-different syndrome in, xxxiv

  financial turbulence index, 248–59

  at country level, 249–52

  in defining global crises, 260–70

  development of, 249–51

  gaps in, 249–50, 251

  at global level, 249, 252–57, 253f, 254f

  at regional level, 249, 252, 257–59

  types of crises in, 249, 251, 406n2

  uses for, 248, 249

  Finland: banking crises in, 159, 226, 231, 362–63t

  duration of crises in, 235

  housing prices in, 226

  sovereign risk rating of, 233

  First Great Contraction. See Great Contraction, First

  fiscal effects: in aftermath of crises, 231–32, 231t, 232f

  of banking crises, 142, 162–71

  fiscal policy: countercyclical, 142, 169, 218, 224–25

  procyclical, 31, 123, 283, 400n6

  fiscal space, 189

  fiscal surpluses, xlii

  fixed exchange rates: crises of confidence in, xliii–xliv

  currency collapse with, 272–73

  foreign currency deposits, in de-dollarization, 193–96, 194f

  foreign currency domestic debt: definition of, 9b

  historical examples of, 64, 106–8, 108b–109b

  foreign direct investment (FDI): debt intolerance and, 31–32

  as incentive for repayment of debts, 58

  preference for, versus other capital inflows, 31–32, 395n13

  foreign exchange interventions: in Asian debt crisis of 1990s, 18

  central banks in, 394n12

  foreign lending. See international lending

  France: banking crises in, 141, 150, 204, 363–65t, 363t

  currency debasements in, 88b

  duration of crises in, 235, 237

  early international lending to, 54

  external default before 1800 by, xxx, 65, 86–87, 87t, 88b