Transcript great recession of 2008

GREAT RECESSION OF
2008
MARK CARNEY FORMER CHAIR OF THE BANK OF CANADA
NOW RUNS THE BANK OF ENGLAND
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Carney warns credit crunch risks recession
The global economy is threatened by a lack of financing for worthy
businesses, Bank of Canada governor Mark Carney warned Tuesday. In his
first speech since being named by G20 leaders to the head of the
international body in charge of banking reform, Carney stressed to a room
of London bankers the need for quick action to increase global liquidity to
avoid sluggish growth for several years.
"Over the past five years, global liquidity has swung wildly from the
exuberant surge that fed a cavalier 'search for yield' … to the severe retreat
that prompted the desperate 'rush for shelter' in the aftermath of Lehman,"
he said.
Liquidity can often be a nebulous concept. But Carney defined it as "the
ease with which financial institutions, households and businesses can
obtain financing." If the conditions aren't in place to allow people and
businesses who need money to use it wisely, few other policy changes will
matter, as the global economic system would seize up.
"Over the medium term, the continuation of such extreme liquidity cycles
could ultimately threaten open capital markets and a free trading system if
not better addressed," Carney warned.
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In the highly technical speech, Carney also offered hints of how he will use his three-year posting
at the Financial Stability Board to try to end the boom and bust liquidity cycles that plague the
global economy. With private liquidity drying up over concerns about sovereign debt in Europe,
Carney said it is again up to the public sector, in particular central banks, to ensure there is
sufficient credit available at reasonable terms for businesses and households to continue to invest
and spend.Just as it did in the summer and fall of 2008, a lack of available credit has already
pushed Europe into what he said will be "at least a brief recession."
Most central banks, international bodies and private sector economists have already begun
assuming a widespread slowdown in Europe into their projections. The impact of that will likely be
felt beyond Europe. "The effect on the real economy will soon be felt," Carney said. In Canada,
Carney last month projected the economy would slow to sub-one per cent growth in the last three
months of this year, half of the expected rate of the third quarter.
The long-term answer to these wild fluctuation in global liquidity is enactment of financial system
reforms proposed by the G20, which the FSB will help monitor, Carney said. The reforms, if
successful, will help moderate the cycles and help smooth out global liquidity flows by making
financial institutions more sound, with greater capital reserves.
"Measures that increase the resilience of financial institutions ... will reduce the probability and
frequency of a sudden liquidity shock," he explained. "Measures that reduce the procyclicality of
the financial system will help stabilize global liquidity flows."
RECESSION READING: PAGE ONE
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IMF concluded it was the worst global recession since WW2
DECREASE IN REAL WORLD GDP
U.S. RECESSION WHEN FROM DEC 2007-JUNE 2009
EVENTS LEADING UP TO THE CRISIS CHARACTERIZED BY A
RISE IN ASSET PRICES AND ASSOCIATED WITH A BOOM IN
DEMAND (INFLATION)
• SHARP DECLINE IN INT’L TRADE, DRIVING UP
UNEMPLOYMENT AND SLUMPING COMMODITY PRICES
• CENTRAL BANKS AND GOVTS RESPONDED WITH FISCAL AND
MONETARY BASED ON STIMULATION
• SUBPRIME MORTGAGES AND US HOUSING BUBBLE AND
DEFAULTS ON MORTGAGES IN 2007 TRIGGERED RECESSION
PAGE TWO
• MEDIAN HOUSEHOLD WEALTH IN USA DECLINED 35% 2005-11
• REAL ESTATE BUBBLES WORLDWIDE (DUBAI, USA)
• BUBBLES LEAD TO HOUSING PRICE CRASH LEADING TO
NEGATIVITY EQUITY FOR HOMEOWNERS
• INTO 2013 LOW CONSUMER CONFIDENCE, DECLINE IN HOME
VALUES, INCREASE IN FORECLOSURES AND PERSONAL
BANKRUPTCIES.
• Aljazeera: Meltdown - The Men Who
Crashed The World - YouTube