This Time is Different: Eight Centuries of Financial Folly

This Time is Different: Eight Centuries of Financial Folly

by Carmen M. Reinhart, Kenneth S. Rogoff

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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.

Product Details

ISBN-13: 9781400831722
Publisher: Princeton University Press
Publication date: 09/11/2009
Sold by: Barnes & Noble
Format: NOOK Book
Pages: 512
Sales rank: 503,474
File size: 12 MB
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About the Author

Carmen M. Reinhart is the Dennis Weatherstone Senior Fellow at the Peterson Institute for International Economics. She was previously professor of economics at the University of Maryland. Kenneth S. Rogoff is the Thomas D. Cabot Professor of Public Policy and professor of economics at Harvard University. He is a frequent commentator for NPR, the Wall Street Journal, and the Financial Times.

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

What People are Saying About This

Barry Eichengreen

This Time Is Different is a tremendously exciting, topical, and controversial book on the history of debt and default. This one belongs on everyone's shelf.
Barry Eichengreen, author of "The European Economy since 1945"

Mohamed El-Erian

You will be hard-pressed to find a more comprehensive and insightful analysis of financial crises. Reinhart and Rogoff's superb book is a must-read for anyone looking to understand past and present crises, as well as navigate those of tomorrow.
Mohamed El-Erian, author of "When Markets Collide"

Niall Ferguson

This is quite simply the best empirical investigation of financial crises ever published. Covering hundreds of years and bringing together a dizzying array of data, Reinhart and Rogoff have made a truly heroic contribution to financial history. This single marvelous volume is worth a thousand mathematical models.
Niall Ferguson, author of "The Ascent of Money: A Financial History of the World"


This Time is Different is terrific, for it gives just the perspective we need on the current world economic crisis. People can't expect to understand the current crisis without some in-depth look at past crises. That is exactly what this excellent and timely book provides.
Robert J. Shiller, author of "Irrational Exuberance" and coauthor of "Animal Spirits"

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This Time Is Different 3.7 out of 5 based on 0 ratings. 40 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."
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.
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.
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'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
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.
browner56 on LibraryThing More than 1 year ago
It is hard to imagine that anyone with even the slightest awareness of economic issues has failed to notice two things that have occurred over the last several years: (1) governments around the world have been borrowing breathtaking amounts of money and (2) the central banks in those countries have pumped a profligate amount of new currency into the financial system in order to support that borrowing by keeping interest rates low. Whether you think these actions are remarkable or mundane probably comes down to how you would answer the following question: Does debt¿particularly sovereign-level borrowing¿really matter?Throughout this engaging volume, noted economists Carmen Reinhart and Kenneth Rogoff make a persuasive case that the answer to that question is a resounding ¿yes¿. Further, the authors argue that how a sovereignty borrows (i.e., from foreign investors or from its own citizens) as well as how it chooses to default on its loans (e.g., currency debasement, inflation propagation, restructured borrowing terms) also matter when it comes to the country¿s future growth prospects and access to capital markets. As its title suggests, the overall theme of the book is that governments and investors alike keep repeating the mistaken economic policies of the past under the assumption that ¿this time is different¿ (e.g., the more sophisticated market structures today allow us to control economic outcomes better than in the past, so we can borrow more without consequence). Using a dizzying array of data tables and charts, Reinhart and Rogoff examine the causes and aftermaths of several hundred years of financial crises and sovereign-level defaults and end up concluding that, in fact, this time is not different in ways that ultimately matter. They finish their analysis with a discussion of the root causes of the recent sub-prime debt crisis, which they term the Second Great Contraction (after the Great Depression of the 1930s). I should note that neither the subject matter nor the expositional style in this book makes for the easiest reading experience. That said, though, the authors do a very nice job in the volume of taking an extraordinary amount of primary academic research¿much of it their own¿and translating into a more digestible form. There are definitely redundancies throughout the various topics they cover, but Reinhart and Rogoff provide the reader with considerable guidance as to what sections or chapters can be skipped without loss of continuity. Overall, I found this to be a well-executed book with an important message to convey about the current state of global economic affairs.
rivkat on LibraryThing More than 1 year ago
Shorter version: No, it¿s not. This data-stuffed book is for people who know/care a lot about macroeconomics. I¿m not sure it¿s the best for general audiences (e.g., me), but they have looked at a lot of different data sources. The book connects external sovereign debt to internal debt (what the government owes its citizens, including sometimes what it extracts from them by regulating what interest they can earn in banks) and argues that internal debt plays a bigger role in debt crises than has been acknowledged. They also argue that the run-up in sovereign debt that occurs in financial crises owes more to decreased tax receipts than to bailouts, though the costs from the latter are not negligible. But the overriding message is more: everyone thinks that they¿ve figured out where past bubbles went wrong, but in reality, when countries pull back on financial regulation, they get big booms that end in big booms.
jcbrunner on LibraryThing More than 1 year ago
"This time is different" offers the data necessary to point out, sorry, you're not so special. I love the books many data tables that include countless stories untold, which is also the book's main weakness. Its great collection and presentation of empiric crisis data makes the missing data on the surrounding political economy all too conspicuous. After all, the sovereign and internal debt crises and banking crises are the result of economic and political mismanagement. Reinhart and Rogoff are in the business of body counting at the scene of the crime. The perpetrators are left out of the picture. Hopefully, somebody will add them soon, although, like unhappy families, it will be difficult to assign them to simple categories. War is certainly one activity that seldom pays and often triggers crises.One puzzle of the book seems to be the lenders' willingness to finance serial defaulters such as Greece. A hard-nosed look at the Greek track record should have discouraged even the most eager banker. In one of The Economist's Xmas issues was a great article about the Russians serially fleecing Western creditors through the centuries. The magic of "This time is different" is unbreakable. One wonders why the continuous currency debasement of most kings (actually an indirect form of taxation) didn't trigger offsetting waves of inflation. How can Reinhart/Rogoff's longterm view be blended into short-term thinking?With two years hindsight, the text offers a good standard overview of sovereign and internal debt crises as well as banking crises. Recommended.
walbat on LibraryThing More than 1 year ago
This book has been widely praised for its quantitative analysis of financial crises going back 100 years or more, which it uses to put our own current (and very serious) crisis into perspective. It is written for readers with a general knowledge of economics, and the authors suggest those primarily interested in the current crisis start reading at Chapter 13. The first twelve chapters describe and explain the authors' model and seemed designed primarily defend their work within the academy. They will certainly interest economic historians, who in the past have relied on less quantitative analyses such as Charles Kindleberger's classic ¿Manias, Panics, and Crashes.¿ Overall, it's an excellent study, and deserves a much wider readership than it will receive.Being good academic economists (rather than policy pundits), the authors are careful in their conclusions, but they take a strong stand on a few issues. One, of course, is that the siren song of ¿this time is different¿ always leads to fatal outcomes. They demonstrate that such arguments, whether justifications for huge, destabilizing inflows of foreign investment (which inevitably reverse course at some point) or confident claims that burgeoning debt balances are based on new valuations for risk and investment (and thus are safer than in the past), invariably prove to be wishful thinking. They offer no solutions for this problem; in fact, they are quite pessimistic that such behavior can be changed. As they put it: ¿The fading memories of borrowers and lenders, policy makers and academics, and the public at large do not seem to improve over time, so the policy lessons on how to 'avoid' the next blow-up are at best limited.¿ They suggest some useful warning indicators, but doubt they will prevent future crises.A second conclusion takes aim at the ¿belief in the invincibility of modern monetary institutions,¿ in particular central banks' obsession in the past few decades with inflation targeting. They are not suggesting that keeping inflation low is a bad thing, but rather that central banks came to view it as an end in itself, a solution to the volatility of the business cycle. What this has meant in practice they illustrate with their description of the ¿Greenspan put.¿ That is, ¿the (empirically well-founded) belief that the U.S. central bank would resist raising interest rates in response to a sharp upward spike in asset prices (and therefore not undo them) but would react vigorously to any sharp fall in asset prices by cutting interest rates to prop them up.¿ This, the authors conclude, led markets to believe (accurately, as it turned out), that the Fed would do nothing to spoil the party in financial markets, and would bail out the party-goers if things went to hell. They reasonably conclude that ¿in hindsight, it is now clear that a single-minded focus on inflation can be justified only in an environment in which other regulators are able to ensure that leverage (borrowing) does not become excessive.¿ Which is another way of saying that inflation-targeting policies become increasingly dangerous as corporate-sponsored deregulation (such as we've witnessed steadily since the 1980s) weakens government supervision.
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SyedBK More than 1 year ago
Very well researched and well articulated. Unfortunately, the decision makers will still believe that this time id different!
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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.
Anonymous More than 1 year ago
I like this book because it is about money
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