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This time is different
This document discusses the concept of "This Time is Different Syndrome" where people believe that financial crises will not affect their country. It then summarizes several past financial crises including the Great Depression, Latin American debt crises in the 1980s and 1990s, the Asian Financial Crisis of 1997, the US Subprime Mortgage Crisis of 2008, and the Greek debt crisis. Each crisis had its own causes but shared themes of excessive debt, asset bubbles, and overconfidence in continued economic growth. The key lesson is that while the form of crises may change, economic crises are a recurring feature and believing "this time is different" is a syndrome that often precedes severe crises.
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This time is different
- 3. This Time isDifferent Syndrome Syndrome Financial Crises are things that happen to other people in other countries in other times. Past Crises Types We do things better, we are smarter and we’ve learned Was it from our past mistakes. Different What’ve We’ll know about a crisis long we enough before it happens. learned?
- 4. The Great Depression1929 • No World War is coming. Syndrome • We have great political stability. Past Crises • Strong sustainable Types economic growth by exports. Was it • Debt burden in Different developing countries were low. What’ve • Relentless global we optimism. learned?
- 5. The Great Depression1929 • Formation of Bubble. • Accumulation of debts • Shrinking money supply by wrong economic policies • Stock market crash • Banking crises
- 6. Latin America DebtCrises 80’s Syndrome • Commodity prices are strong. • Low interest rates. Past Crises • Oil money is being recycled. Types • Heavy investments. Was it • Bank loans instead of bond Different loans. What’ve we learned?
- 7. Latin America DebtCrises 80’s Syndrome Past Crises Types Was it Different What’ve we learned?
- 8. Asia debt crises1997 Syndrome • Conservative fiscal policy Past Crises • Stable exchange rates Types • High rates of growth Was it • High rates of savings Different • No remembered history of What’ve financial crises. we • Rise of Asian Tigers. learned?
- 9. Asia debt crises1997 Syndrome • Bubble of “hot” Past Crises money. • Increase in US $ Types interest rate. • Cutting peg to US $. Was it • Crises of confidence. Different • Large withdrawal of What’ve cash from Asian we countries. learned?
- 10. Latin America DebtCrises 90’s Syndrome • Bond debts (opposite of 80s). • No desire to repeat 80s crises. Past Crises • More democracies than 80s. Types • Mexico in NAFTA Was it Different What’ve we learned?
- 11. Subprime Mortgage Crisis2008 Syndrome • Powerful economy and world Past Crises domination. Types • Rise in House prices. Was it • Huge investment in Real Estate. Different • Loans for mortgage. What’ve • Formation of Housing Bubble. we learned?
- 12. Greece Debt Syndrome • As part of a strong monetary union, a trust Past Crises was maintained. • Since it joined the Eurozone, it has ceded Types control of monetary policy to the ECB and can no longer print money Was it • Greece had not a credible financial reporting Different of its fiscal position. • Two of its largest industries, maritime What’ve shipping and tourism were hit strongly from we the global economic downturn. learned?
- 13. Greece Debt Syndrome • If Greece were to default on its debt payments it Past Crises would amount to the biggest sovereign default Types in history, bigger than that of Russia and Argentina combined. Was it Different • If Greece were to What’ve default, it would raise we fears that the crisis will learned? spread to other Eurozone members.
- 14. Types of Crises Syndrome PastCrises Crises Episodes Types External Domestic Banking Inflation Currency Default Default Crisis and related Crash Was it Different Illiquidity Domestic Currency What’ve Foreign Insolvency we Currency learned?
- 15. I. Sovereign ExternalDebt Consequences Syndrome Past Crises Loss of economy reputation and trust. Types Decrease FDI and investment run. Was it No access to international fund (Greece 1800s). Different What’ve Followed by Banking crises. we learned? High inflation and low growth.
- 16. 1st Fully RecordedDefault
- 17. I. Sovereign ExternalDebt Number of Defaults of Country Rescheduling since 1800 CANADA 0 CHINA 2 EGYPT 2 GERMANY 8 INDIA 3 INDONESIA 4 MEXICO 8 SINGAPORE 0 USA 0 All countries 250
- 18. I. Sovereign ExternalDebt Solutions Syndrome Cut lender heads (King Philip IV & knight Templars) Past Crises Types Force to pay by invasion or union (Britain and Egypt 1881, US and Haiti 1915, Canada and Newfoundland 1936-1949) Was it Short term borrowing (for illiquidity crises) Different What’ve Improve economic performance we learned? Rescheduling (Russia with Odious debts)
- 19. II. Sovereign DomesticDebt Syndrome Usually in domestic currency. Past Crises Usually long-term (50-80%). Types Comprises 40-70% of all public debts. Was it Different Since 1800 AD, only 70 defaults or rescheduling. What’ve Too rare to have domestic default because it’s easily manageable by inflation. we learned? Built up more rapidly after external debts (Argentina in 1982,1989, 2001).
- 20. II. Sovereign DomesticDebt Solutions Syndrome Kings seize lands and cut heads (Philip IV and Past Crises Knight Templars 1307) Types Debasement (with metal coins) Was it Different Inflation (most famous solution) What’ve we learned? Economy restructuring
- 21.
- 22. III. Banking Crisis Consequences Syndrome Past Crises Very sharp decrease in TAX revenues. Types High rise in sovereign debts (Spain 70s). Was it Different Costly wave of recession (Japan in 90s until now). What’ve we learned? Cause all other crises.
- 24. IV. Inflation Country Max % Inflation since 1800 Year Syndrome or Independence CANADA 23.8 1917 Past Crises CHINA 1579.3 1947 EGYPT 40.8 1941 Types GERMANY 2.22 * E 10 1923 GREECE 3.02 * E 10 1944 Was it HUNGARY 9.63 * E 26 1946 Different INDIA 53.8 1943 INDONESIA 939.8 1966 What’ve MEXICO 131.8 1987 we learned? SINGAPORE 23.5 1973 USA 24 1864
- 25. V. Currency Crash -Dollarization $$$ - Hysteresis - Loss control of economy planning
- 26. Banking Crisis Default onexternal AND/OR domestic Currency crash debt Peak of bank crisis Inflation crisis (if no default)
- 27. Was it different? The great Syndrome depression 1929 Banking Crises. Latin America External and domestic defaults, banking Past Crises debts 80s crises, inflation crises. Types Asian debt Currency crash, external defaults, banking crisis 1997 crises. Was it Latin America External and domestic defaults, banking Different debts 90s crises, currency crash. Subprime What’ve Mortgage crises Banking crisis. we learned? Greece debt crisis Banking crisis, external default.
- 28. What’ve we learned? Syndrome There’s nothing new except what’s forgotten. Past Crises No country have ever escaped economic Types crises. Was it Crises are not different, only the approach Different to solution is what makes the difference. What’ve Economic sustainability is all about balance we of all economic aspects. learned?