Dealing with debt : the 1930's and the 1980's

The debt crisis of the 1930's illustrated the difficulty of global plans for resolving the debt crisis and underscored the importance of market-based debt-reduction schemes. The crisis of the 1980's differed in fundamental ways from that of the 1930's, but the earlier crisis illuminated the current crisis in several ways. The authors conclude that: (a) economic variables alone do not explain the incidence and extent of default; (b) implications of different debt-management strategies for macroeconomic performance remain difficult to isolate; (c) there is little evidence that countries that defaulted in the 1930's suffered reduced access to capital markets after World War II; and (d) the readjustment of defaulted debts entailed a protracted negotiation process. They further conclude that: (e) Government intervention in the 1930's and 1980's differs less in extent than direction in terms of pressure placed on debtors and creditors to maintain service on their debt; (f) global schemes to short-circuit the protracted process of bilateral negotiations proved unavailing; and (g) unlike global plans, market based debt reduction helped to resolve the debt crisis of the 1930's by reducing the overhang and eliminating marginal creditors.Environmental Economics&Policies,Strategic Debt Management,Banks&Banking Reform,Economic Theory&Research,Public Sector Economics&Finance

Dealing With Debt: The 1930s and the 1980s

This paper analyzes the sovereign defaults of the 1930s and their implications for the debt crisis of the 1980s. It reports nine major findings. There is little evidence that financial markets have grown more sophisticated' over time, or that banks have a comparative advantage over the bond market in processing information. (2) Debt default in the 1930s depended on a combination of factors,. including the magnitude of the external shocks, the level of debt, and: the: economic policy response , as well as on a range, of: noneconomic considerations. (3) Countries which interrupted service recovered more quickly from the Great Depression than countries which resisted default. This contrasts with the experience of the 1980s, when no clearcut relationship exists (4) There is little evidence that countries which defaulted in the 19305 suffered inferior capital market access subsequently. (S} The readjustment of defaulted debts was protracted: the analogy with Chapter 11 corporate bankruptcy proceedings is no more applicable to the 1930s than to the 1980s. (6) Although default led in some cases to a substantial reduction of transfers from debtors to creditors, on balance returns on sovereign loans compared favorably with returns on domestic investments. (7) Creditor-country governments did more in the 'thirties than in the 'eighties to accelerate the settlement process. (3) Global schemes analogous to the Baker Plan were widely proposed but never implemented. (9) In contrast, market-based debt reduction in the form G debt buybacks played a useful role in the resolution of the crisis.

The Anatomy of Financial Crises

A financial crisis is a disturbance to financial markets. associated typically with falling asset prices and insolvency among debtors and intermediaries, which spreads through the financial system, disrupting the market’s capacity to allocate capital. In this paper we analyze the generation and propagation of financial crises in an international setting. We provide a perspective on the danger of a serious disruption to the global financial system by comparing the last full-fledged financial crisis - that of the 1930s - with conditions prevailing today. Our definition of a financial crisis implies a distinction between generalized financial crises on the one hand and isolated bank failures, debt defaults and foreign-exchange market disturbances on the other. We represent this distinction in three sets of linkages: between debt defaults; and between exchange-market disturbances and bank failures. In both the 1930s and 1980s, the institutional environment was drastically altered by rapid change in foreign exchange markets, in international capital markets, and in the structure of domestic banking systems. Our comparative analysis underscores the critical role played by institutional arrangements in financial markets as a determinant of the system's vulnerability to destabilizing shocks.

Situational Factors Contributing to The Expression of Aggression on The Roads

This study explored the influence of situational factors on aggressive driving from within the framework of a frustration-aggression model of aggressive driving. Through the use of driving scenarios, a number of situational characteristics were manipulated to examine their effect on the level of anger reported by participants and their likely behavioural response. The situational characteristics examined included the age, gender and anonymity of the offending driver, and the sense of time pressure as well as the gender of the participants. The results confirmed that the situational characteristics of a potentially frustrating road event can influence both the anger reported by participating drivers and their likely behavioural response

A Model of Russia's "Virtual Economy"

The Russian Economy has evolved into a hybrid form, a partially monetized quasi-market system that has been called the virtual economy. In the virtual economy, barter and non-monetary transactions play a key role in transferring value from the productive activities to the loss-making sectors of the economy. We show how this transfer takes place, and how it can be consistent with the incentives of economic agents. We analyze a simple partial-equilibrium model of the virtual economy, and show how it might prove an obstacle to industrial restructuring and hence marketizing transition.http://deepblue.lib.umich.edu/bitstream/2027.42/39701/3/wp317.pd

Debt and Default in the 1930s: Causes and Consequences

This paper analyzes the "debt crisis" of the 1930s to see what light this historical experience sheds on recent difficulties in international capital markets. We first consider patterns of overseas lending and borrowing in the 1920s and 1930s, comparing the performance of standard models of foreign borrowing in this period to the 1970-80s. Next, we analyze the incidence and extent of defaulton sovereign debt, adapting models of debt capacity to the circumstances of the interwar years. We consider the choices available to investors in those foreign loans which lapsed into default in the 1930s, emphasizing the distinction between creditor banks and bond holders. Finally, we provide the first estimates of the realized rate of return on foreign loans floated between the wars, based on a sample of dollar andsterling bonds issued in the 1920s.

A comprehensive revision of the U.S. monetary services (divisia) indexes

The authors introduce a comprehensive revision of the Divisia monetary aggregates for the United States published by the Federal Reserve Bank of St. Louis, referred to as the Monetary Services Indexes (MSI). These revised MSI are available at five levels of aggregation, including a new broad level of aggregation that includes all of the assets currently reported on the Federal Reserve’s H.6 statistical release. Several aspects of the new MSI differ from those previously published. One such change is that the checkable and savings deposit components of the MSI are now adjusted for the effects of retail sweep programs, beginning in 1994. Another change is that alternative MSI are provided using two alternative benchmark rates. In addition, the authors have simplified the procedure used to construct the own rate of return for small-denomination time deposits and have discontinued the previous practice of applying an implicit return to some or all demand deposits. The revised indexes begin in 1967 rather than 1960 because of data limitations.Money supply

Liquidity crises in the small and large

Federal Reserve programs during the recent financial crisis sought to provide liquidity to individual firms or industries. An interesting additional question is whether the aggregate amount of liquidity in the economy was appropriate before and during the recent financial crisis.Liquidity (Economics) ; Financial crises