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.
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Carmen M. Reinhart is the Minos A. Zombanakis Professor of the International Financial System at Harvard Kennedy School. Previously, she was the Dennis Weatherstone Senior Fellow at the Peterson Institute for International Economics and Professor of Economics and Director of the Center for International Economics at the University of Maryland. She spent several years at the International Monetary Fund. Reinhart is a Research Associate at the National Bureau of Economic Research, and a member of the Congressional Budget Office Panel of Economic Advisers and the Economic Advisory Panel of the Federal Reserve Bank of New York. Reinhart has written on a variety of topics in macroeconomics and international finance. Her best-selling book (with Kenneth S. Rogoff) entitled This Time is Different: Eight Centuries of Financial Folly documents the striking similarities of the recurring booms and busts that have characterized financial history and has been translated to over 20 languages and won the 2010 Paul A. Samuelson TIAA-CREF Institute Award, among others.Kenneth Rogoff is Thomas D. Cabot Professor at Harvard University. From 2001–2003, Rogoff served as Chief Economist at the International Monetary Fund. His 2009 book with Carmen Reinhart, This Time Is Different: Eight Centuries of Financial Folly has been very widely cited by academics, policymakers and journalists. Rogoff is also known for his seminal work on exchange rates and on central bank independence. His treatise Foundations of International Macroeconomics (with Maurice Obstfeld) is the standard graduate text in the field worldwide. His monthly syndicated column on global economic issues is published in over 50 countries. He is a senior fellow at the Council on Foreign Relations, and serves on the Economic Advisory Panel of the New York Federal Reserve.
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