If there is a single word that has defined the economic crisis in Europe and the United States, it is debt, Coggan says. Debt has been all consuming, drowning homeowners and mortgages, leaving cities and counties bankrupt, and forcing countries to make public cuts, even in the face of fierce opposition.
In his latest book, Paper Promises: Debt, Money, and the New World Order, Coggan, columnist for The Economist magazine, looks back in history at other debt crises in attempt to analyze the current situation.
In an interview with IMF Survey online, Coggan explains that this is not the first time in history unsustainable debt levels meant drastic changes for how the world does business.
IMF Survey online: Can you explain the premise of your book?
Coggan: The thesis of the book is that history is a battle between creditors and debtors, and the battleground is the nature of money. Over time, creditors have insisted on forms of sound money, whether the money is linked to precious metal like gold, or whether currencies are fixed in rates against each other.
Debtors have tended to want their value of money to be flexible. They have wanted more money to be created at times of crisis, or exchange rates to move, float on the markets so that they can devalue away their debts.
What has happened in history is that we have had a series of periods in which debts have built up. There have been crises—the 1930s, the 1970s, and now—and as those crises unfolded, the nature of the monetary system changed, and a new order came into place; that new order tended to be set by the creditor nation.
IMF Survey online: How did the levels of debt that we have accumulated in the past decade compare to other periods of high debt?
Coggan: We have much higher levels of total debt relative to economic output—gross domestic product—than we have before. There have been moments in history when governments have had higher ratios of debt to GDP than they have now. But, we have not had debt right across the economy in the consumer sector, in the corporate sector, and in the banking sector, in the same way that we have had today.
We are talking about most of the developed world having scenes of 300 to 400 percent debt levels of GDP; and of course we saw in Ireland and Iceland scenes of seven to nine...