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A Decade of Debt

  • Reinhart, Carmen M.
  • Rogoff, Kenneth

This paper presents evidence that public debts in the advanced economies have surged in recent years to levels not recorded since the end of World War II, surpassing the heights reached during the First World War and the Great Depression. At the same time, private debt levels, particularly those of financial institutions and households, are in uncharted territory and are (in varying degrees) a contingent liability of the public sector in many countries. Historically, high leverage episodes have been associated with slower economic growth and a higher incidence of default or, more generally, restructuring of public and private debts. A more subtle form of debt restructuring in the guise of "financial repression" (which had its heyday during the tightly regulated Bretton Woods system) also importantly facilitated sharper and more rapid debt reduction than would have otherwise been the case from the late 1940s to the 1970s. It is conjectured here that the pressing needs of governments to reduce debt rollover risks and curb rising interest expenditures in light of the substantial debt overhang (combined with the widespread "official aversion" to explicit restructuring) are leading to a revival of financial repression--including more directed lending to government by captive domestic audiences (such as pension funds), explicit or implicit caps on interest rates, and tighter regulation on cross-border capital movements.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8310.

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Date of creation: Apr 2011
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Handle: RePEc:cpr:ceprdp:8310
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  1. Carmen M. Reinhart & Kenneth S. Rogoff, 2011. "From Financial Crash to Debt Crisis," American Economic Review, American Economic Association, vol. 101(5), pages 1676-1706, August.
  2. Graciela L. Kaminsky & Carmen M. Reinhart, 1996. "The twin crises: the causes of banking and balance-of-payments problems," International Finance Discussion Papers 544, Board of Governors of the Federal Reserve System (U.S.).
  3. Olivier Jeanne, 2004. "Debt Maturity and the International Financial Architecture," IMF Working Papers 04/137, International Monetary Fund.
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  13. Bruno, Michael & Easterly, William, 1995. "Inflation crises and long-run growth," Policy Research Working Paper Series 1517, The World Bank.
  14. Carmen M. Reinhart & Kenneth S. Rogoff, 2004. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," The Quarterly Journal of Economics, MIT Press, vol. 119(1), pages 1-48, February.
  15. Carmen Reinhart & Vincent Reinhart, 2009. "Capital Flow Bonanzas: An Encompassing View of the Past and Present," NBER Chapters, in: NBER International Seminar on Macroeconomics 2008, pages 9-62 National Bureau of Economic Research, Inc.
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  19. Jaejoon Woo & Manmohan S. Kumar, 2010. "Public Debt and Growth," IMF Working Papers 10/174, International Monetary Fund.
  20. Diaz-Alejandro, Carlos, 1985. "Good-bye financial repression, hello financial crash," Journal of Development Economics, Elsevier, vol. 19(1-2), pages 1-24.
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    • Reinhart, Carmen & Rogoff, Kenneth & Savastano, Miguel, 2003. "Debt intolerance," MPRA Paper 13932, University Library of Munich, Germany.
  22. Giovannini, Alberto & de Melo, Martha, 1993. "Government Revenue from Financial Repression," American Economic Review, American Economic Association, vol. 83(4), pages 953-63, September.
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  26. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "This Time Is Different: Eight Centuries of Financial Folly," Economics Books, Princeton University Press, edition 1, volume 1, number 8973, March.
  27. John Geanakoplos & Ana Fostel, 2008. "Leverage Cycles and the Anxious Economy," American Economic Review, American Economic Association, vol. 98(4), pages 1211-44, September.
  28. Reinhart, Carmen & Reinhart, Vincent, 2008. "Is the US too big to fail?," MPRA Paper 12976, University Library of Munich, Germany.
  29. Peter H. Lindert & Peter J. Morton, 1989. "How Sovereign Debt Has Worked," NBER Chapters, in: Developing Country Debt and the World Economy, pages 225-236 National Bureau of Economic Research, Inc.
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  30. Krugman, Paul, 1979. "A Model of Balance-of-Payments Crises," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 11(3), pages 311-25, August.
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  32. Reinhart, Carmen & Rogoff, Kenneth, 2010. "Debt and Growth Revisited," MPRA Paper 24376, University Library of Munich, Germany.
  33. Joseph E. Gagnon & Marc Hinterschweiger, 2011. "The Global Outlook for Government Debt over the Next 25 Years: Implications for the Economy and Public Policy," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 6215, May.
  34. Milton Friedman & Anna J. Schwartz, 1963. "A Monetary History of the United States, 1867-1960," NBER Books, National Bureau of Economic Research, Inc, number frie63-1, October.
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