This paper, presented at the 2010 Annual Conference of the German Economic Association, examines the long-run dynamics of money, credit, and macroeconomic indicators in 12 developed countries from 1870 to 2008. The authors, Moritz Schularick and Alan M. Taylor, use a newly constructed historical dataset to study rare events associated with financial crises. They find that leverage in the financial sector increased significantly in the second half of the 20th century, as evidenced by the decoupling of money and credit aggregates and a decline in safe assets on banks' balance sheets. The paper also shows that monetary policy responses to financial crises have been more aggressive post-1945, but the output costs of crises have remained large. Importantly, credit growth is identified as a powerful predictor of financial crises, suggesting that such crises are "credit booms gone wrong." The authors argue that policymakers ignore credit at their peril and that the long-run comparative data assembled in this paper provides clear evidence for these patterns.This paper, presented at the 2010 Annual Conference of the German Economic Association, examines the long-run dynamics of money, credit, and macroeconomic indicators in 12 developed countries from 1870 to 2008. The authors, Moritz Schularick and Alan M. Taylor, use a newly constructed historical dataset to study rare events associated with financial crises. They find that leverage in the financial sector increased significantly in the second half of the 20th century, as evidenced by the decoupling of money and credit aggregates and a decline in safe assets on banks' balance sheets. The paper also shows that monetary policy responses to financial crises have been more aggressive post-1945, but the output costs of crises have remained large. Importantly, credit growth is identified as a powerful predictor of financial crises, suggesting that such crises are "credit booms gone wrong." The authors argue that policymakers ignore credit at their peril and that the long-run comparative data assembled in this paper provides clear evidence for these patterns.