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A Decade of Debt

  • Carmen M. Reinhart
  • Kenneth S. Rogoff

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 National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16827.

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Date of creation: Feb 2011
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Publication status: published as A Decade of Debt (with Carmen M Reinhart), Washington DC: Peterson Institute for International Economics, September 2011.
Handle: RePEc:nbr:nberwo:16827
Note: IFM ME
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  1. 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.
  2. Carmen M. Reinhart & Kenneth S. Rogoff, 2008. "This Time is Different: A Panoramic View of Eight Centuries of Financial Crises," NBER Working Papers 13882, National Bureau of Economic Research, Inc.
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  7. 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.
  8. Carmen Reinhart & M. Belen Sbrancia, 2015. "The Liquidation of Government Debt," IMF Working Papers 15/7, International Monetary Fund.
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  11. Sophia Lazaretou, 2005. "Greek Monetary Economics in Retrospect: The Adventures of the Drachma," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 34(3), pages 331-370, November.
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  20. Reinhart, Carmen & Rogoff, Kenneth, 2010. "Debt and Growth Revisited," MPRA Paper 24376, University Library of Munich, Germany.
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  25. repec:ucp:bkecon:9780226519999 is not listed on IDEAS
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  37. Reinhart, Carmen & Reinhart, Vincent, 2008. "Is the US too big to fail?," MPRA Paper 12976, University Library of Munich, Germany.
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