Technical Notes for ‘63 High Government Debt Episodes’

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.

high debt episodes 105 7

high debt episodes 105 8

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:

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.

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