This Time Is Different

The acclaimed New York Times bestselling history of financial crisesThroughout 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. With this breakthrough study, leading economists Carmen Reinhart and Kenneth Rogoff definitively prove them wrong.Covering sixty-six countries across five continents and eight centuries, This Time Is Different presents a comprehensive look at the varieties of financial crises-including government defaults, banking panics, and inflationary spikes-from medieval currency debasements to the subprime mortgage catastrophe. Reinhart and Rogoff provocatively argue that financial combustions are universal rites of passage for emerging and established market nations.A remarkable history of financial folly, This Time Is Different will influence financial and economic thinking and policy for decades to come.

LIST OF TABLES xiiiLIST OF FIGURES xviiLIST OF BOXES xxiiiPREFACE xxvACKNOWLEDGMENTS xxxviiPREAMBLE: SOME INITIAL INTUITIONS ON FINANCIAL FRAGILITY AND THE FICKLE NATURE OF CONFIDENCE xxxixPART I: Financial Crises: An Operational Primer 1Chapter 1: Varieties of Crises and Their Dates 3Crises Defined by Quantitative Thresholds: Inflation, Currency Crashes, and Debasement 4Crises Defined by Events: Banking Crises and External and Domestic Default 8Other Key Concepts 14Chapter 2: Debt Intolerance: The Genesis of Serial Default 21Debt Thresholds 21Measuring Vulnerability 25Clubs and Regions 27Reflections on Debt Intolerance 29Chapter 3: A Global Database on Financial Crises with a Long-Term View 34Prices, Exchange Rates, Currency Debasement, and Real GDP 35Government Finances and National Accounts 39Public Debt and Its Composition 40Global Variables 43Country Coverage 43PART II: Sovereign External Debt Crises 49Chapter 4: A Digression on the Theoretical Underpinnings of Debt Crises 51Sovereign Lending 54Illiquidity versus Insolvency 59Partial Default and Rescheduling 61Odious Debt 63Domestic Public Debt 64Conclusions 67Chapter 5: Cycles of Sovereign Default on External Debt 68Recurring Patterns 68Default and Banking Crises 73Default and Inflation 75Global Factors and Cycles of Global External Default 77The Duration of Default Episodes 81Chapter 6: External Default through History 86The Early History of Serial Default: Emerging Europe, 1300-1799 86Capital Inflows and Default: An "Old World" Story 89External Sovereign Default after 1800: A Global Picture 89PART III: The Forgotten History of Domestic Debt and Default 101Chapter 7: The Stylized Facts of Domestic Debt and Default 103Domestic and External Debt 103Maturity, Rates of Return, and Currency Composition 105Episodes of Domestic Default 110Some Caveats Regarding Domestic Debt 111Chapter 8: Domestic Debt: The Missing Link Explaining External Default and High Inflation 119Understanding the Debt Intolerance Puzzle 119Domestic Debt on the Eve and in the Aftermath of External Default 123The Literature on Inflation and the "Inflation Tax" 124Defining the Tax Base: Domestic Debt or the Monetary Base? 125The "Temptation to Inflate" Revisited 127Chapter 9: Domestic and External Default: Which Is Worse? Who Is Senior? 128Real GDP in the Run-up to and the Aftermath of Debt Defaults 129Inflation in the Run-up to and the Aftermath of Debt Defaults 129The Incidence of Default on Debts Owed to External and Domestic Creditors 133Summary and Discussion of Selected Issues 136PART IV: Banking Crises, Inflation, and Currency Crashes 139Chapter 10: Banking Crises 141A Preamble on the Theory of Banking Crises 143Banking Crises: An Equal-Opportunity Menace 147Banking Crises, Capital Mobility, and Financial Liberalization 155Capital Flow Bonanzas, Credit Cycles, and Asset Prices 157Overcapacity Bubbles in the Financial Industry? 162The Fiscal Legacy of Financial Crises Revisited 162Living with the Wreckage: Some Observations 171Chapter 11: Default through Debasement: An "Old World Favorite" 174Chapter 12: Inflation and Modern Currency Crashes 180An Early History of Inflation Crises 181Modern Inflation Crises: Regional Comparisons 182Currency Crashes 189The Aftermath of High Inflation and Currency Collapses 191Undoing Domestic Dollarization 193PART V: The U.S. Subprime Meltdown and the Second Great Contraction 199Chapter 13: The U.S. Subprime Crisis: An International and Historical Comparison 203A Global Historical View of the Subprime Crisis and Its Aftermath 204The This-Time-Is-Different Syndrome and the Run-up to the Subprime Crisis 208Risks Posed by Sustained U.S. Borrowing from the Rest of the World: The Debate before the Crisis 208The Episodes of Postwar Bank-Centered Financial Crisis 215A Comparison of the Subprime Crisis with Past Crises in Advanced Economies 216Summary 221Chapter 14: The Aftermath of Financial Crises 223Historical Episodes Revisited 225The Downturn after a Crisis: Depth and Duration 226The Fiscal Legacy of Crises 231Sovereign Risk 232Comparisons with Experiences from the First Great Contraction in the 1930s 233Concluding Remarks 238Chapter 15: The International Dimensions of the Subprime Crisis:The Results of Contagion or Common Fundamentals? 240Concepts of Contagion 241Selected Earlier Episodes 241Common Fundamentals and the Second Great Contraction 242Are More Spillovers Under Way? 246Chapter 16: Composite Measures of Financial Turmoil 248Developing a Composite Index of Crises: The BCDI Index 249Defining a Global Financial Crisis 260The Sequencing of Crises: A Prototype 270Summary 273PART VI: What Have We Learned? 275Chapter 17: Reflections on Early Warnings, Graduation, Policy Responses, and the Foibles of Human Nature 277On Early Warnings of Crises 278The Role of International Institutions 281Graduation 283Some Observations on Policy Responses 287The Latest Version of the This-Time-Is-Different Syndrome 290DATA APPENDIXES 293A.1. Macroeconomic Time Series 295A.2. Public Debt 327A.3. Dates of Banking Crises 344A.4. Historical Summaries of Banking Crises 348NOTES 393REFERENCES 409NAME INDEX 435SUBJECT INDEX 443