1. 1 Is the 2007 U.S. Sub-Prime Financial Crisis So Different?: An International Historical Comparison Carmen M. Reinhart University of Maryland and NBER Kenneth S. Rogoff Harvard University and NBER

2. 2 Is the US Subprime crisis a new kind of financial crisis?

3. 3 “Overindebtedness simply means that debts are out-of-line, are too big relative to other economic factors. It may be started by many causes, of which the most common appears to be new opportunities to invest at a big prospective profit… such as through new industries… Easy money is the great cause of over of over- borrowing.” One plausible diagnosis

4. 4 This diagnosis... Comes from Irving Fisher (1933). There are quantitative parallels as well.

5. 5 Quantitative Parallels to Post-War Banking Crises in Industrialized Countries Leading indicators: –Sharp Housing and Equity Price Run-ups –Large Capital Inflows –Marked rise in indebtedness –Inverted V-shaped growth trajectory

6. 6 The “Big Five” Post-War Industrialized Country Financial Crises COUNTRY (Start date)/ Fiscal cost (% GDP) Spain (1977)16.8 Norway (1987) 4 Finland (1991) 8 Sweden (1991) 6 Japan (1992) 20

7. 7 Milder Industrialized Country Financial Crises Australia (1989), Canada (1983), Denmark (1987), France (1994), Germany (1977), Greece (1991), Iceland (1985), Italy (1990), New Zealand (1987), United Kingdom (1974, 1991, 1995) United States (1984, 2007).

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13. 13 A different kind of recycling During 1970s, US banks “recycled” Petrodollars to developing countries During 2000s, US recycled Petrodollars and Asian Surpluses to a developing country inside the United States Is the result the same?

14. 14 Is the United States different? Looks similar or worse by most standard run-up indicators (Kaminsky and Reinhart, 1999), Yet inflation is better. What’s in store for the United States? Will it –Experience a “mild financial crisis” (with a sustained slowdown), or –Suffer a severe “Big Five” recession

15. 15 Looking ahead The bailout costs are estimated at around $1 trillion (about 7 percent of GDP) Monetary policy stimulus is keeping real interest rates negative The last time we had a combination of a sliding dollar, high commodity prices, and negative real interest rates

16. 16 Looking ahead Was the late 1970s—when US inflation reached its post-war high According to the IMF’s World Economic Outlook, two-thirds of the countries it covers reported higher inflation in 2007