This Time is Different – A History of Debt

total government debt
Total Government Debt % of GDP (click for larger size)

Debt to GDP Ratios source: This Time is Different. This statistic is for total government debt (domestic + external)

IMF Data dissemination

Historical Debt using Current Public Sector Debt to GDP

public-sector-debt

These Graphs Pose An Interesting Question – How did we recover from these record debt levels?

It usually involves a combination of  inflation (1820s + 1914-18) devaluation or economic growth (e.g. UK in 1950s and 1960s.)

inflation

Lessons from This Time is Different

  1. Sovereign Debt Default crisis followed by hyper inflation were quite common in the past –  but less so recently.
  2. Banking crisis are frequent and when they occur they tend to be devastating for government finances (on average government debt rises by 86 per cent during the three years following a banking crisis) and the economy in general.
  3. Certain factors make financial crisis more likely – loose regulation, asset bubbles, current account deficits, excess confidence.
  4. In a boom, it is easy for those involved to wave away warning signs and past lessons of history.
  5. There is no guarantee banking crisis won’t return to harm us in the long term.

Book CoverThis time will be different at Amazon.co.uk

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