This Time is Different: Eight Centuries of Financial Folly

This Time is Different: Eight Centuries of Financial Folly

3.6 36
by Carmen M. Reinhart, Kenneth Rogoff

ISBN-10: 0691142165

ISBN-13: 9780691142166

Pub. Date: 09/11/2009

Publisher: Princeton University Press

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

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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. With this breakthrough study, leading economists Carmen Reinhart and Kenneth Rogoff definitively prove them 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.

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Table of Contents







PART I: Financial Crises: An Operational Primer 1

Chapter 1: Varieties of Crises and Their Dates 3

Crises Defined by Quantitative Thresholds: Inflation, Currency Crashes, and Debasement 4

Crises Defined by Events: Banking Crises and External and Domestic Default 8

Other Key Concepts 14

Chapter 2: Debt Intolerance: The Genesis of Serial Default 21

Debt Thresholds 21

Measuring Vulnerability 25

Clubs and Regions 27

Reflections on Debt Intolerance 29

Chapter 3: A Global Database on Financial Crises with a Long-Term View 34

Prices, Exchange Rates, Currency Debasement, and Real GDP 35

Government Finances and National Accounts 39

Public Debt and Its Composition 40

Global Variables 43

Country Coverage 43

PART II: Sovereign External Debt Crises 49

Chapter 4: A Digression on the Theoretical Underpinnings of Debt Crises 51

Sovereign Lending 54

Illiquidity versus Insolvency 59

Partial Default and Rescheduling 61

Odious Debt 63

Domestic Public Debt 64

Conclusions 67

Chapter 5: Cycles of Sovereign Default on External Debt 68

Recurring Patterns 68

Default and Banking Crises 73

Default and Inflation 75

Global Factors and Cycles of Global External Default 77

The Duration of Default Episodes 81

Chapter 6: External Default through History 86

The Early History of Serial Default: Emerging Europe, 1300-1799 86

Capital Inflows and Default: An "Old World" Story 89

External Sovereign Default after 1800: A Global Picture 89

PART III: The Forgotten History of Domestic Debt and Default 101

Chapter 7: The Stylized Facts of Domestic Debt and Default 103

Domestic and External Debt 103

Maturity, Rates of Return, and Currency Composition 105

Episodes of Domestic Default 110

Some Caveats Regarding Domestic Debt 111

Chapter 8: Domestic Debt: The Missing Link Explaining External Default and High Inflation 119

Understanding the Debt Intolerance Puzzle 119

Domestic Debt on the Eve and in the Aftermath of External Default 123

The Literature on Inflation and the "Inflation Tax" 124

Defining the Tax Base: Domestic Debt or the Monetary Base? 125

The "Temptation to Inflate" Revisited 127

Chapter 9: Domestic and External Default: Which Is Worse? Who Is Senior? 128

Real GDP in the Run-up to and the Aftermath of Debt Defaults 129

Inflation in the Run-up to and the Aftermath of Debt Defaults 129

The Incidence of Default on Debts Owed to External and Domestic Creditors 133

Summary and Discussion of Selected Issues 136

PART IV: Banking Crises, Inflation, and Currency Crashes 139

Chapter 10: Banking Crises 141

A Preamble on the Theory of Banking Crises 143

Banking Crises: An Equal-Opportunity Menace 147

Banking Crises, Capital Mobility, and Financial Liberalization 155

Capital Flow Bonanzas, Credit Cycles, and Asset Prices 157

Overcapacity Bubbles in the Financial Industry? 162

The Fiscal Legacy of Financial Crises Revisited 162

Living with the Wreckage: Some Observations 171

Chapter 11: Default through Debasement: An "Old World Favorite" 174

Chapter 12: Inflation and Modern Currency Crashes 180

An Early History of Inflation Crises 181

Modern Inflation Crises: Regional Comparisons 182

Currency Crashes 189

The Aftermath of High Inflation and Currency Collapses 191

Undoing Domestic Dollarization 193

PART V: The U.S. Subprime Meltdown and the Second Great Contraction 199

Chapter 13: The U.S. Subprime Crisis: An International and Historical Comparison 203

A Global Historical View of the Subprime Crisis and Its Aftermath 204

The This-Time-Is-Different Syndrome and the Run-up to the Subprime Crisis 208

Risks Posed by Sustained U.S. Borrowing from the Rest of the World: The Debate before the Crisis 208

The Episodes of Postwar Bank-Centered Financial Crisis 215

A Comparison of the Subprime Crisis with Past Crises in Advanced Economies 216

Summary 221

Chapter 14: The Aftermath of Financial Crises 223

Historical Episodes Revisited 225

The Downturn after a Crisis: Depth and Duration 226

The Fiscal Legacy of Crises 231

Sovereign Risk 232

Comparisons with Experiences from the First Great Contraction in the 1930s 233

Concluding Remarks 238

Chapter 15: The International Dimensions of the Subprime Crisis:

The Results of Contagion or Common Fundamentals? 240

Concepts of Contagion 241

Selected Earlier Episodes 241

Common Fundamentals and the Second Great Contraction 242

Are More Spillovers Under Way? 246

Chapter 16: Composite Measures of Financial Turmoil 248

Developing a Composite Index of Crises: The BCDI Index 249

Defining a Global Financial Crisis 260

The Sequencing of Crises: A Prototype 270

Summary 273

PART VI: What Have We Learned? 275

Chapter 17: Reflections on Early Warnings, Graduation, Policy Responses, and the Foibles of Human Nature 277

On Early Warnings of Crises 278

The Role of International Institutions 281

Graduation 283

Some Observations on Policy Responses 287

The Latest Version of the This-Time-Is-Different Syndrome 290


A.1. Macroeconomic Time Series 295

A.2. Public Debt 327

A.3. Dates of Banking Crises 344

A.4. Historical Summaries of Banking Crises 348





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This Time Is Different 3.7 out of 5 based on 0 ratings. 36 reviews.
RolfDobelli More than 1 year ago
Every so often, experts sucker people into bidding up the prices of stocks or real estate because they announce that the economy has fundamentally changed. As the aftermath of the real estate bubble illustrates, the basics of economics don't really change, no matter what fantasies people come to believe. Economics professors Carmen M. Reinhart and Kenneth S. Rogoff present a thorough historical and statistical tour of financial hubris through the centuries, a postmortem that will make you wonder how anyone ever believed "this time is different." The staid tone, formulas, charts and somewhat confusing organization make this fascinating history challenging to absorb. Yet, the content, which sweeps ambitiously and carefully across centuries and countries, rewards the persistent reader with many insights and gems, like the nation-by-nation appendix of fiscal history low points. getAbstract recommends this analytical overview to history buffs, investors, managers and policy makers who seek perspective on "financial folly."
hrizk More than 1 year ago
This book refutes the claims ( recently advocated by wall street bankers) that the US financial crisis is a one in a hundred year event and could not be predictable. In fact, and as Reinhart and Rogoff clearly show in their excellent book "This Time Is DIfferent", recent history is full of financial and banking crisis. If bankers and politicians paid more attention and learned from prior experiences, 2008 financial crisis could have been averted.
Buddy-Boy More than 1 year ago
The information presented in this book is very relevent to business today. However, it is a tough read. Geared for those with a greater acedemic bent than Devil Take the Hindmost or other similar books.
Anonymous More than 1 year ago
The book was nearly finished before the most recent collapse, since the project must have taken a great deal of time. It clearly states the case that we must avoid herd and self delusion in financial matters -- but we seldom do. A decade ago I remember the derision being heaped upon the "old economy" as opposed to the miracles of anything having a patina of "high tech." Before the recent collapse the wizard masters of the financial universe believed that certain algorithms could determine the credit worthiness of undefined and black-box financial instruments in the absence of old fashioned and stodgy research. As Britney would say, "Oops.did it again." The book is fascinating history. History as revelation, not bunko."
Anonymous More than 1 year ago
I like this book because it is about money
Anonymous More than 1 year ago
I'm certain of the competence of the authors. However, this is book is hard for a reasonably educated layperson (JD MA in History) to understand. It would appeal to others in the financial industry.
BobBUT More than 1 year ago
This book provides a great historical summary of why every financial institution and government is just a little suspect. The question is not who does not default, but how, and how frequently. Don't use your Nook for this one. You need the hardcopy to read the charts and diagrams. Though the book is long and complex, since the authors are trying to lay out the whole financial history of the last several hundred years, just reviewing the charts tells most of the story. It's hard to ever look at that dollar bill in your wallet in the same way.
Anonymous More than 1 year ago
SyedBK More than 1 year ago
Very well researched and well articulated. Unfortunately, the decision makers will still believe that this time id different!
Anonymous More than 1 year ago
Someone else said that it's a technical book, which is true. Maybe read it after you get your masters in econ or finance, or perhaps after reading other econ books. But if your interest in financial (and other) crises is just starting, then there are other books that are better suited for the lay person. But it's not really all that technical when it comes to theory. There aren't any stochastic models that take up pages with definitions and assumptions and algebraic manipulations. It's the empirical work that eats up most of this book, justifiably. The authors have a huge dataset that they've already published from and here they combine some papers and some new material into a book. The first few chapters are a good introduction to the topic (lit review, a little theory, a full chapter of definitions, etc.), then it's pages of figures and tables. Their data is an antidote to theory on crises and borrowing that doesn't correspond to even the most stylized facts about sovereign debt; eg, how many models out there assume emerging economies borrow to smooth consumption, when, in reality, borrowing is pro-cyclical? The writing is straight-forward, but there are lots of numbers so it's good to have as a reference. Just know what you're getting into, because this book is great for what it sets out to do: make terminology around crises precise, present a massive amount of information about various types of crises, and make initial inferences about that data.
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BarryO More than 1 year ago
This authors have researched the topic in great detail. It is very insightful into understanding economies, inflation and what is in store for us in the future. A great resource for anyone investing.
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