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

  graduation from serial default, 87, 88b, 147, 283

  hyperinflation in, 88b

  Gabon, banking crises in, 365t

  Gambia, banking crises in, 365t

  gaming, of third parties, 62

  GDF. See Global Development Finance

  GDP: banking crises weighted by, 204, 205f

  data on, 37–38, 120, 311–14t

  before and after debt defaults, 129, 130f, 132–33, 132t

  financial sector as percentage of, 162, 210

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

  GDP, real per capita: in aftermath of crises, 229–30, 230f

  after banking crises, 165, 165f, 166f, 229–30, 230f

  in global financial crises, 262–63, 264f

  as indicator of crises, 219, 220f

  Geary-Khamis weights, 396n10

  generations, transfer of debt through, 63

  Georgia, banking crises in, 365t

  Germany: banking crises in, 365t

  domestic debt in, 125

  duration of crises in, 235

  external default by, 87t

  inflation in, 125

  U.S. subprime crisis in, 242

  Ghana, banking crises in, 365–66t

  Global Development Finance (GDF), World Bank, 23t, 24t, 25t, 27t, 40–41, 42, 332t, 336t, 337t, 338t, 341t

  global economic factors: in data, 43

  in external defaults, 77–81

  global financial crises: construction industry in, 266–68, 268t

  criteria for, 260–70

  cross-country synchronicity of, 260, 265–69

  definition of, 260, 260b

  difficulty of recovery from, 249, 269–70

  economic effects of, 260–69

  GDP in, 262–63, 264f

  historical examples of, 261b, 270

  sequencing of, 270–73, 271f

  stock prices in, 262, 263f

  trade in, 263–64, 265f, 266–70, 266f, 267f

  unemployment in, 268–69, 269t

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

  global financial system, risks of debt accumulation in, xxv, xxxiii

  global recession of 2001, inflation rates after, 187

  global savings glut, 79, 209, 211

  Glorious Revolution (1688), 65, 70b

  gold clauses, abrogation of, 44, 113t, 117, 251, 401n11

  Goldman Sachs, 210

  gold mines, 93b

  gold standard, 44, 71, 76, 200, 242

  government, crises of confidence in, xli–xlv

  government debt. See public debt

  Government Financial Statistics, IMF, 231t

  government leaders, this-time-is-different syndrome in, xxxiv. See also policy makers

  government revenue. See revenue

  graduation, 283–87

  from banking crises, 139, 141, 147, 153, 171, 283–84

  from debt intolerance, 28–33, 193

  definition of, 283–84

  from exchange rate crises, 284

  from inflation crises, 181, 196–97, 283

  measurement of, 284–87

  origins of concept, 283

  pace of, 278

  recommendations on, 290

  from serial default, 87, 88b, 147, 151–53, 171, 283

  Great Britain. See Britain

  Great Contraction, First (1930s), origins of term, 393n7, 403n1. See also Great Depression

  Great Contraction, Second (global financial crisis of the late 2000s): common fundamentals of, 242–46

  contagion of, 240–47

  definition of, xxix, xlv

  economic effects of, xlv, 262

  equity prices in, 239

  Federal Reserve in, 146

  GDP in, 262–63, 264f

  global scope of, 233

  housing prices in, 159, 208

  indicators of, 208

  inflation in, 189

  origins of term, 393n7, 403n1

  severity of, 208, 248, 255, 270, 273

  stock prices in, 262, 263f

  this-time-is-different syndrome in, 20, 290–92

  trade in, 263–64, 266f

  transformation of subprime crisis into, 206

  usefulness of historical comparisons to, 199, 238–39. See also United States sub-prime crisis

  Great Depression (1930s): aftermath of, 225, 233–38

  banking crises in, xliv, 146, 204–5

  banks before and after, number of, 162, 163f

  construction industry in, 266–68, 268t

  contagion of, 242

  corporate default in, 251

  cross-country synchronicity of, 265–69

  domestic default during, 14, 111

  duration of, 234–37, 234f

  economic effects of, 262

  external default during, 71, 73

  GDP in, 262–63, 264f

  versus postwar crises, 225, 233–38

  public debt in, 237–38, 237f

  stock prices in, 262, 263f

  this-time-is-different syndrome in, 15–17, 16b

  trade in, 263–64, 265f, 266–68, 266f, 267f

  unemployment in, 225, 228, 237, 268–69, 269t

  versus U.S. subprime crisis, 200–201

  Great Depression, Second, 248

  Great Moderation, 256–57

  Greece: banking crises in, 366t

  currency debasement in, 174–75

  exchange rate crises in, 6

  external default by, xxx, 12–13, 83b, 92, 98

  graduation in, 287

  international capital markets in, 398n8

  Greenspan put, 291

  gross domestic product. See GDP

  gross national product, data on, 307–10t

  Group of 20, 406n1

  growth. See economic growth

  growth collapse crises: in Argentina, 252

  definition of, 252, 407n6

  in financial turbulence index, 250

  Guatemala, banking crises in, 366t

  Guinea, banking crises in, 366t

  Guinea-Bissau, banking crises in, 366t

  gunboat diplomacy, 54, 81, 83b

  Haiti, debt repayment to U.S. by, 54, 83b

  Honduras: banking crises in, 366–67t

  external default by, 13, 92

  Hong Kong: banking crises in, 159, 226, 367t

  housing prices in, 159, 226

  inflation crises in, 182

  sovereign risk rating of, 284

  household debt: defaults on, in financial turbulence index, 251

  and U.S. subprime crisis, 209, 212, 220

  housing prices: in aftermath of crises, 226, 227f

  around banking crises, 142, 158–62, 160t, 172, 226, 227f

  bursting of bubbles in, 7–8

  Case-Shiller index of, 207, 226, 404n6, 404n7, 405n29

  as indicators of crises, 217, 217f, 221, 279–81

  need for more data on, 278, 279

  problems with data on, 8, 225–26, 279, 405n29

  in Second Great Contraction, 244

  sources of data on, 324–25t

  U.S. policy debate over, 212–13

  in U.S. subprime crisis, 207–8, 207f, 221, 226

  Hungary: banking crises in, 159, 367t

  contagion of crises in, 246

  housing prices in, 159

  inflation crises in, 5

  hyperinflation: before 1800, 183t

  after 1800, 184t, 185, 186–87t

  currency conversions in, 6–7

  definition of, 5

  domestic public debt and, 104, 119, 125, 126f. See also inflation crises

  hysteresis, 191

  Iceland: banking crises in, 158, 226, 367t, 404n5

  current account balance in, 244

  equity prices in, 226

  housing prices in, 159, 244

  IFS. See International Financial Statistics

  IIR. See Institutional Investor rating
s

  illiquidity: versus insolvency, 59–61

  in reschedulings, 90

  imports, data on, 320–22t. See also trade

  incentives: for inflation control, 119, 125

  for repayment of domestic debts, 65–67, 110–11

  for repayment of external debts, 54–58

  independence, wars of, in Latin America, 92

  independence, year of, 43, 45–46t, 91t, 92

  time spent in banking crises since, 147–50, 148–50t, 154t

  time spent in default since, 95–100, 97t, 99–100t, 148–50t, 150. See also colonies

  indexation: consumer price, 35–36, 296–301t

  cost-of-living, 35, 296–301t

  housing price, 207, 226, 404n6, 404n7, 405n29

  index of financial turbulence. See financial turbulence index

  India: banking crises in, 204, 367t

  capital flow bonanzas in, 401–2n18

  domestic debt in, 66

  external debt in, 12, 94, 117

  external default by, xxx–xxxi, 92–94, 98

  interest rates in, 117, 143

  indicators: of banking crises, 8–10, 216–22, 279, 280t

  data on, 323t

  in early warning system, 279–81

  of external default, 73–81

  housing prices as, 217, 217f, 221, 279–81

  of Second Great Contraction, 208

  signals approach to, 279–81, 408n3

  of U.S. subprime crisis, xxix, xliii, 200, 216–22

  Indonesia: banking crises in, 368t

  duration of crises in, 235

  external default by, xxx–xxxi, 92, 98

  housing prices in, 159

  inflation crises in, 182

  inflation: costs of, 111

  data on, 35–36

  before and after debt defaults, 129–33, 131f, 132t

  domestic default through, 65, 111–17, 175

  external default associated with, 75–77, 76f, 175, 400n2

  fatigue, 106

  median rates of, for all countries, 180–81, 181f

  partial default through, 44, 75

  stabilization of, 187

  as tax, 124–25, 400n7

  before U.S. subprime crisis, 220

  inflation crises (high inflation), xxxii–xxxiii, 180–97

  before 1800, 181–82, 183t

  after 1800, 182–89, 184t, 186–87t, 188f

  aftermath of, 180, 191–93

  chronic, 4

  and currency debasements, 35, 174–79

  definition of, xxvi, 4–5, 7t

  dollarization after, 180, 191–93, 192f

  domestic public debt in, 119, 124–27, 126t

  duration of, 4

  and exchange rate crises, 180, 189–97, 272

  fatigue in, 106

  in financial turbulence index, 249–50, 406n4

  graduation from, 181, 196–97, 283

  incentives for avoiding, 119, 125

  incidence of, xxxii–xxxiii, 133, 134f

  recommendations on responses to, 289

  in sequencing of crises, 272

  stabilization of, 187

  this-time-is-different syndrome in, 187, 291

  universality of, 180, 196–97. See also hyperinflation

  inflation tax, 124–25, 400n7

  information technology (IT) industry bubble, xlv, 162, 171

  innovation, financial: as form of liberalization, 156

  as precursor to crises, 217

  in U.S. subprime crisis, 156, 208, 210

  innovation, technological, negative effects of, 179

  insolvency, versus illiquidity, 59–61

  institution(s): failings of, in debt intolerance, 30–31

  financial, number before and after crises, 162, 163f. See also international institutions

  Institutional Investor ratings (IIR): after banking crises, 233f

  in debt intolerance, 26–29, 27t, 29f

  historical changes in, 284–87, 285–86t, 288f

  as indicator of crises, 280t

  interest rates: in aftermath of crises, 222, 224

  on domestic versus external debt, 106, 107t

  in exchange rate crises, 6

  reduction of, in reschedulings, 90

  repression of, 66, 106, 117, 143

  for short-term debt, 59

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

  usury laws against, 69b

  international contagion. See contagion

  International Currency Experience, League of Nations, 407n19

  International Financial Statistics (IFS), IMF, 35, 36, 131f, 132f, 134f, 135f, 217f, 218f, 221f, 229f, 301t, 302t, 303t, 304t, 307t

  international institutions: on best practices, 401n10

  in data collection and monitoring, 278, 281–82

  in debt crisis of 1990s, 94

  and duration of external default, 81–83

  in international regulation, 278, 281–82

  in partial default, 62

  in public debt transparency, xxxiv, 138, 281–82

  recommendations on role of, 281–82

  in reputation approach to lending, 55–56. See also specific institutions

  international law, enforcement of debt repayment in, 53, 56–57

  international lending: economic theory on, 54–61

  illiquidity versus insolvency in, 59–61

  legal approach to, 53, 56–57

  reputation approach in, 55–58

  third parties in, 62. See also external public debt

  International Monetary Fund (IMF): on best practices, 401n10

  and confidence, xli–xlii

  on consumer price indexes, 36

  in debt crisis of 1990s, 18, 94

  on debt thresholds, 394n6

  on domestic public debt, xxxi

  and duration of external default, 81–83

  on exports, 39

  frequency of default since creation of, 62

  on global economy before subprime crisis, 214

  Government Financial Statistics, 231t

  guarantees of, for public versus corporate default, 406n1

  in Mexican domestic default, 14, 108b

  on national accounts, 39

  on prices, 35, 36

  on public debt, 40–42

  in public debt transparency, xxxiv, 281–82

  in Second Great Contraction, 239, 240

  Special Data Dissemination Standard, 42, 282. See also International Financial Statistics

  World Economic Outlook

  international regulation: in financial sector, 145

  international institutions’ role in, 278, 281–82

  need for, 278, 282

  international trade. See trade

  investors: rationality of, 62–63

  reschedulings’ impact on, 90. See also creditors

  Ireland: banking crises in, 158, 368t, 404n5

  current account balance in, 244

  housing prices in, 159

  Israel: banking crises in, 368t

  de-dollarization in, 194f, 195–96

  Italy: banking crises in, 368–69t

  duration of crises in, 235

  early international debt markets in, 69b

  repayment of English debts to, 55, 56, 57, 69b–70b

  IT industry bubble, xlv, 162, 171

  It’s a Wonderful Life (movie), xl

  Jamaica, banking crises in, 369t

  Japan: banking crises in (See Japanese banking crises)

  domestic debt in, 126

  duration of crises in, 235

  external debt to GDP ratios in, 22

  financial turbulence index for, 259

  inflation in, 126

  lost decade of, 215

  sovereign risk rating of, 233

  U.S. subprime crisis in, 242

  Japanese banking crises: asset prices in, 206

  bailout costs for, 164

  equity prices and, 162

  housing prices in,
159, 226

  public debt after, 402n35

  recession after, 230

  severity of, 215

  stimulus measures in, 169, 290

  summary of, 370–71t

  Jordan: banking crises in, 371t

  Brady bonds in, 84b

  Kazakhstan, U.S. subprime crisis in, 242

  Kenya, banking crises in, 371t

  kleptocracy, 53, 63–64, 136–37

  knowledge transfer, and incentives for repayment of debts, 58

  Kolmogorov-Smirnoff test, 80f, 130f, 132f, 133, 400n4

  Korea: banking crises in, 371t

  debt reversals in, 84b

  duration of crises in, 235

  graduation in, 284, 287

  housing prices in, 159

  inflation crises in, 182

  Korean War, 264

  Kuwait, banking crises in, 372t

  Kyrgyz Republic, banking crises in, 372t

  land seizures, 89

  Lao People’s Democratic Republic, banking crises in, 372t

  Latin America: banking crises in, 147, 149–50t, 152–54t

  commodity price boom of 1970s in, 17–18

  contagion of crises in, 246–47

  data coverage of, 43, 46t

  debt crisis of 1980s in, 17–18, 246

  debt crisis of 1990s and early 2000s in, 19

  domestic public debt in, 104–5, 105f, 399n2

  external default in (See Latin American external default)

  financial turbulence index for, 257, 258f, 259

  GDP during global crises, 262–63

  graduation in, 287

  inflation crises before 1800 in, 182, 183t

  inflation crises after 1800 in, 185, 186–87t, 187, 188f, 189, 259, 407n12

  international capital markets of 1800s in, 92, 93b–94b

  lending boom of 1820s in, 15

  this-time-is-different syndrome in, 15, 17–18, 19

  wars of independence in, 92. See also specific countries

  Latin American external default, xxx–xxxi

  in 1800s, 91t, 92, 400n6

  in 1900s and 2000s, 94, 96t

  debt ratios at time of, 120, 121f

  time spent in, since independence, 98, 99–100t

  Latvia: banking crises in, 372t

  current account balance in, 244

  League of Nations: Annual Reports, 37

  on domestic public debt, 104f, 105, 105f, 106f, 107t, 117f

  International Currency Experience, 407n19

  on public debt, 41, 121f, 122f, 123f

  Statistical Abstract, 114t

  Statistical Year-book, 41, 82b, 330t, 331t, 332t, 333t, 334t, 335t, 336t, 337t, 338t, 339t, 340t, 341t, 342t, 343t

  World Economic Survey, 263, 266f, 268t, 269t, 407n18

  Lebanon: banking crises in, 372t

  de-dollarization in, 195

  legal framework, for enforcement of debt repayment, 53, 56–57

  Lehman Brothers, 210

  lenders. See creditors

  Lesotho, banking crises in, 372t

  leverage: in debt intolerance, 28