This is an appendix for my earlier post, “63 High Government Debt Episodes and What They Tell Us about Our Options Today.” It contains a summary of credit events that occurred during the debt battles listed in the main article. I’ll also explain the calculations behind America’s current 105% debt-to-GDP ratio.
As indicated in the main article, 52 of 63 high debt episodes featured at least one credit event that left lenders with a lower return than originally promised. The events could be defaults, bond conversions, service moratoriums and/or debt cancellations.
Although my goal was to see what we could learn from the credit event-free episodes, I’d be remiss not to identify the reasons for excluding nearly all of the others. For this, I divided the credit events into three time periods. The first two time periods are summarized in the tables below. The third time period, from 1979 to today, didn’t require a table because the story was the same for every episode except one. Apart from Zimbabwe, which took the international pariah route after its 2000 default and policies of domestic aggression, all of the other high debt episodes in the past four decades included at least one IMF program and one restructuring, and usually several of each.
Much of the information above comes from the following three sources:
- Carmen M. Reinhart and Kenneth S. Rogoff, This Time is Different: Eight Centuries of Financial Folly (Princeton: Princeton University Press, 2009).
- Carmen M. Reinhart and M. Belen Sbrancia, “The Liquidation of Government Debt,” NBER Working Paper No. 16893, March 2011;
- Christian Suter, Debt Cycles in the World‑Economy: Foreign Loans. Financial Crises, and Debt Settlements. 1820‑1990 (Boulder, CO: Westview Press, 1992).
Further detail on specific creditor negotiations and restructurings is taken from:
- 1800s defaults and restructurings in Argentina and 1882 swap in Uruguay: Graciela Kaminsky and Pablo Vega-Garcia, “Varieties of Sovereign Crises: Latin America, 1820-1931,” Working Paper (draft), May 2013.
- 1844 restructuring in the Netherlands: Wantje Fritschy and Rene van der Voort, “From Fragmentation to Unification: Public Finance, 1700-1914,” in A financial history of the Netherlands, Chapter 4, ed. M. Hart, J. Jonker and J.L. van Zanden (Cambridge: Cambridge University Press, 1997); Michael Wintle, An Economic and Social History of the Netherlands, 1800-1920 (Cambridge: Cambridge University Press, 2000).
- 1881 restructuring in Turkey: Christopher Clay, Gold for the Sultan: Western Bankers and Ottoman Finance, 1856-1881 (London: I.B. Taurus, 2000).
- 1880s restructuring in Spain and 1890s restructuring in Greece: Marc Flandreau and Frederic Zumer, The Making of Global Finance 1880 – 1913, Development Center of the OECD, 2004.
- Post-Spanish-American War restructurings in Spain: Francisco Comin, “Default, rescheduling and inflation: debt crisis in Spain during the 19th and 20th centuries,” Working Papers in Economic History, Universidad Carlos III, Departamento de Historia Económica e Instituciones, 2012.
- 1926 Italian debt conversion: Silvana Bartoletto, Bruno Chiarini and Elizabetta Marzano, “The Sustainability of Fiscal Policy in Italy: A Long-term Perspective,” CESifo Working Paper No. 3812, May 2012.
- 20th century negotiations and debt restructurings in Bolivia and Chile: Erika Jorgensen and Jeffrey Sachs, “Default and Renegotiation of Latin American Foreign Bonds in the Interwar Period,” NBER Working Paper No. 2636, June 1988.
- 1932 credit event in Nicaragua: Carlos Marichal, A Century of Debt Crises in Latin America (Princeton, N.J.: Princeton University Press, 1989).
- 1930s debt conversion and war loan forgiveness in New Zealand: Michael Reddell, “The New Zealand Debt Conversion Act 1933: A Case Study in Coercive Domestic Public Debt Restructuring,” Bulletin, Vol. 74, No. 1, Reserve Bank of New Zealand, 2012.
- Primary resource for post-1950 bond restructurings: Christoph Trebesch, Michael G Papaioannou and Udaibir S. Das, “Sovereign Debt Restructurings 1950 – 2010: Literature Survey, Data, and Stylized Facts,” IMF Working Papers 12/203, International Monetary Fund, 2012.
- Primary resource for dates of IMF programs: Carmen M. Reinhart, “This Time is Different Chartbook: Country Histories on Debt, Default, and Financial Crises,” NBER Working Paper 15815, March 2010.
Explaining today’s 105% debt-to-GDP ratio
As of the end of March, the Treasury Department reported gross debt of $16.8 billion, while the Bureau of Economic Analysis (BEA) reported GDP of $15.8 billion. I rounded the resulting 106% debt-to-GDP ratio to 105%, which also happened to be the CBO’s projection (at that time) for the end of the fiscal year.
Since then, the BEA revised its entire GDP history higher by adding additional components, and the CBO adjusted its figures accordingly. This change shaved almost 5% from debt-to-GDP ratios. I chose to ignore it for the purposes of this article, for two reasons.
First, the global debt-to-GDP history that I’m using is more consistent with the BEA’s old methodology than the new one. It doesn’t make sense to mix apples and oranges.
Second, I haven’t yet thought through the economic case for the changes and weighed them against other limitations of this data series. Call me cynical, but I prefer to look past the BEA’s fooling around with its methods and use the pre-rewriting-of-history data.
You may also wonder about my use of gross rather than net debt. This, too, is essential for consistency, since the historical data is comprised almost entirely of gross figures. More generally, see here for a discussion of the twisted logic of our government’s practice of sweeping its trust fund obligations under the carpet, which explains nearly all of the difference between gross and net.