This Time Is Different

Carmen Reinhart and Kenneth Rogoff set out to count financial crises rather than narrate them. Their database covers 66 countries that together account for about 90 percent of world output, with most data from the past two centuries and evidence on debasement, inflation and external default reaching back to the medieval era. From it they classify crises by type and measure what typically happens before and after each one.

The authors are among the best-qualified economists to do this. Rogoff, a Harvard professor, was chief economist of the International Monetary Fund; Reinhart, now at the Harvard Kennedy School, later became chief economist of the World Bank. The book won the Council on Foreign Relations' Arthur Ross gold medal and became a bestseller, unusual for a volume dense with tables and charts.

Reviewing it for EH.Net, the financial historian Richard Sylla argued that it fills the gap between episodic histories such as Charles Mackay's and Edward Chancellor's and Charles Kindleberger's analytical but non-quantitative Manias, Panics, and Crashes. He also noted its limits: the results are mostly averages and medians, individual crises get little narrative detail, and there is little theory and only modest policy guidance. The later controversy over a spreadsheet error concerned a separate 2010 Reinhart-Rogoff paper on debt and growth, not this book's data.

For anyone in sovereign credit, macro or bank risk, it is the reference work to keep on the desk.

1. Rich countries are not exempt. Since 1800 Britain has had 12 banking crises, the United States 13 and France 15, so advanced-economy status is no protection.
2. Watch capital inflows and housing. Heavy borrowing from abroad, rapid real estate inflation and rising household leverage preceded crises again and again, including in the US before 2007.
3. Banking crises become fiscal crises. Real government debt rises on average by about 86 percent in the three years after a banking crisis, driven by falling tax revenue and higher spending, not just the direct cost of rescues.
4. Hidden debts matter. Domestic public debt, which averages about two-thirds of the total, is often ignored, yet it shapes default risk and inflation as much as external debt does.
5. Distrust the new-era story. Each boom produces reasons why old limits no longer apply, and the historical record says that confidence is itself a warning sign.

The book moves from definitions and data through each family of crisis, then applies the findings to the 2007-2009 meltdown, with roughly a hundred pages of data appendixes at the end.

1. A primer. The authors define the varieties of crisis, including inflation, currency crashes and debasement, external and domestic default and banking crises, and describe the database behind the book.
2. Sovereign external debt. They chart cycles of default from 14th-century England, whose default ruined Italian lenders, through 169 episodes since 1946, and show that defaults cluster after surges in capital inflows and that many countries default serially.
3. Domestic debt. A largely forgotten history: domestic debt has averaged about two-thirds of public debt, and governments have defaulted on it at least 70 times since 1800, often amid very high inflation.
4. Banking, inflation and currency crises. No country escapes banking crises. After one, real house prices fall about 35 percent over six years, equities about 56 percent and real government debt rises about 86 percent within three years.
5. The subprime crisis. About a quarter of the book places the US crash alongside earlier severe banking crises in rich countries and shows how familiar warning signs, including foreign borrowing, housing inflation and rising leverage, were explained away. A closing section asks what has been learned.

Examines financial crises of the past and discusses similarities between these events and the current crisis, presenting and comparing historical patterns in bank failures, inflation, debt, currency, housing, employment, and government spending.