This Time is Different, Again? The United States Five Years after the Onset of Subprime [PDF on Ken Rogoff’s faculty page on; also,]

Link to original article, October 14, 2012,

Link to very similar article, October 15, 2012,

Carmen M. Reinhart and Kenneth S. Rogoff

Harvard University

Five years after the onset of the 2007 subprime financial crisis, GDP per capita in the  United States remains below its initial level. Unemployment, although down from its peak, is  still hovering near 8 percent. Rather than the V-shaped recovery that is typical of most post-war  recessions, growth has been slow and halting. Based on our research (Reinhart and Rogoff,  2009), this disappointing performance should not be surprising. We have presented evidence that recessions that are associated with a systemic banking crises tend to be deep and protracted and  that this pattern is evident across both the historical and cross country experience. Subsequent academic research using different approaches and samples have found similar results.

Perhaps part of the confusion in the recent “US is different” op-eds is a failure to distinguish systemic financial crises from more minor ones and from regular business cycles. A systemic financial crisis affects a large share of a country’s financial system. They are quite distinct from less severe events that clearly fall short of a full-blown systemic meltdown, and are referred to in the literature as “borderline” crises. The distinction between a systemic and a borderline event is well established according to widely accepted criteria and is clear in both our work and that of
other scholars.

Indeed, in our initial paper on this topic (Reinhart and Rogoff, 2008), we showed that systemic financial crises across advanced economies had far more serious economic consequences than borderline crises. Our paper, written nine months before the collapse of Lehman in September 2009, showed that by 2007, United States already shared many of the key recurring precursors of a systemic financial crisis: a real estate bubble, high levels of debt, chronically large current account deficits, and signs of slowing economic activity. Today, there can be little doubt that the United States has experienced a systemic crisis. This is, in fact, the first systemic financial crisis the United States has experienced since the Great Depression. Before that, notable systemic post-Civil War US financial crises include those dated in 1873, 1893 and 1907.

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