Fiscal Crises & Imperial Collapses - Ferguson 5.13.2010

8/9/2019 Fiscal Crises & Imperial Collapses - Ferguson 5.13.2010

http://slidepdf.com/reader/full/fiscal-crises-imperial-collapses-ferguson-5132010 1/40

Historical Perspectives on Current Predicaments

Niall Ferguson, Harvard University

Peterson Institute for International Economics, Washington DC

May

13,

2010



We are witnessing a debt explosion in

the developed

world

Source: IMF



With the power to scare governments

into emergency

action



Such crises are nothing new—they’re

as old

as

the

bond

market

Source: Larry Neal



War and revolution are the traditional

causes of

crisis

French

Seven Years' War,

American War ofIndependence, 1775-83

RevolutionaryWars, 1792-1815

-

Source: Larry Neal



A pattern consistently to be found for

more than

a century

Source: Alan Taylor



Unlike lightning, they tend to strike the

same places

twice

Source: Alan Taylor



Latin America, Central, Eastern and

Southern Europe,

and

the

Middle

East

Source: Alan Taylor



But advanced economies

are not

exempt

Source: Reinhart and Rogoff (2009)



Source: Reinhart and Rogoff (2009)



Source: BIS



Source: BIS





Source: BIS



Source: IMF



‐

Source: BIS

federal revenues in 2040: 22.3% of GDP



•

– Measured by

debt

to

GDP

or

to

revenue

or

to

exports

• Excessive interest payments

– Measured by

debt

service

to

GDP

or

to

tax

revenue

• Excessive reliance on foreign capital

– Measured by

debt

to

exports

or

net

international

investment position



•

– Low growth

–

• Political

weakness – Excessive expenditure and insufficient taxation are

politically determined

• Irrationa

exu erance – Investors keep forgetting to learn from history



Source: NBER/GFD



Source: NBER/GFD



Source: NBER/GFD



Source: NBER/GFD



Sovereign debt: A history of hopes

dashed by

outcomes

Source: Lindert and Morton



Sovereign debt: A history of hopes

dashed by

outcomes

Source: Lindert and Morton





1 A higher growth rate of GDP

2 A

lower

interest

rate

on

the

public

debt3 A bailout, meaning either a current transfer payment

4 Fiscal pain, meaning an increase in taxes and/or a cut

in public

spending

5 Increased recourse to seigniorage (revenues from

monetary issuance) by the central bank

‐,

the original

terms

of

the

debt

contract,

including

repudiation, standstill, moratorium, restructuring, .

Source: Buiter (2010)



1 A higher growth rate of GDP

2 A

lower

interest

rate

on

the

public

debt3 A bailout, meaning either a current transfer payment

4 Fiscal pain, meaning an increase in taxes and/or a cut

in public

spending

5 Increased recourse to seigniorage (revenues from

monetary issuance) by the central bank

‐,

the original

terms

of

the

debt

contract,

including

repudiation, standstill, moratorium, restructuring, .

Source: Buiter (2010)



• •

between – Only Britain 1815‐1914

– States with

monetary

sovereignty

reduced debt burden

exclusively through

– States with own‐

currency debt

,

interest rates and higher

growth

• e au ers

– States with limited

– And Britain

had

the

advantage of the

industrial revolution

– States with foreign

currency debt



Source: Musson



‐

Source: Buiter



Source: GFD







• *

war size

debt

burdens?

– Reduce marginal tax rates on income and

– Raise taxes on consumption to reduce deficits

depreciating their currencies

*One exception:

Britain

1815

‐1913



•

war size

debt

burdens?

government debt

–

– Default on commitments to politically weak

– Condemn bond investors to negative real interest rates



•

crises of

public

finance?

,

spending is usually the first casualty

–

,

creditors can arise

–

currency status

can

be

lost

to

a rising

rival



Source: White

House



Source: Goldman

Sachs



’



© Niall Ferguson 2010

Date post:	30-May-2018
Category:	Documents
Upload:	broyhill-asset-management
View:	224 times
Download:	0 times

Fiscal Crises & Imperial Collapses - Ferguson 5.13.2010

Documents