A Decade of Debt (Policy Analyses in International Economics)

This book 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. 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 Contents ......Page 4 Preface......Page 14 Acknowledgments......Page 18 Executive Summary......Page 20 I. Introduction......Page 22 II. Surges in Public Debt......Page 25 III. The Financial Crash–Sovereign Debt Crisis Sequence......Page 30 IV. Debt and Growth......Page 41 V. The Aftermath of High Debt: The 1930s and World War II......Page 50 VI. Conclusion......Page 54 I. Preamble......Page 60 II. Key to Figures and Methodology Notes......Page 61 III. Debt and Crises: Main Themes......Page 63 References......Page 66 About the Authors......Page 174 Index......Page 176 Decade Of Doubt. Surges In Public Debt ; The Financial Crash : Sovereign Debt Crisis Sequence ; Debt And Growth ; Aftermath Of High Debt : The 1930s And World War Ii -- Chartbook Of Country Histories Of Debt, Default, And Financial Crises -- Preamble ; Key To Figures And Methodology Notes ; Debt And Crises : Main Themes. Carmen M. Reinhart And Kenneth S. Rogoff. Includes Bibliographical References And Index.