Transcript Global Finance and The Crisis of Today

The Economic Crisis of Today
Cemus 12 October 2015
Erik Andersson
School of Global Studies
University of Gothenburg
Today’s economic crises
How did it start?
What happened and why?
Tendencies now?
1997
CDS derivative invented
Chinese monetary policy -> exports
US stock and credit boom -> imports
US trade deficit
China saves in US bonds
2000
Dot com-bubbel bursts
Low interest rates
Glass-Steagall act scrapped
self regulation and rationality
CDO/MBS spreads
2001
9/11
War on terror & Afghanistan
Lower interest rates
US twin deficit
Budget – from Tax cuts and war
Trade
Asian & European trade surpluses
Saved in US bonds
Asset price bubble
Housing bubble
Debt-financed consumption
2003 Irak
2004 IMF warns for ”global housing boom”
2005 CDS market expands rapidly
The crisis starts
2007 mortgage-/real estate crisis in USA
Spreads to Europe (Baltics, PIIGs, etc)
CDOs and CDSs tip market (actors) over the edge
2008 Lehman defaults => financial chock-wave
No-one lends on global financial market
Liquidity support from central banks
2009: Global crisis management
G20 London and Pittsburgh:
IMF gets 750 billion USD
OECD swear allegience
FSF -> FSB to oversee regulation on financial
market: “Basel II”
Free trade support
Credit/loans to the South
National crisis management
Bank support
TARP in US, Bankgurantees in Irland, etc
Industry support
Germany and US “cash for clunkers”
Low interest rate policies
Effects
- Layoffs/unemployment when investment and
consumption dwindled
- Asset and housing slumps
- Soaring budget deficits
Who was hit?
“Subprime” home-owners
Laid off workers
Savers
Who was not hit?
“Prime” home-owners
Stockholders
2009 – 2015
Big corporate profits back, on smaller sales
Stock-market regains
/ Budget crisis in Greece, Ireland, Spain, UK, Italy, Baltic
countries etc.
European austerity policies begin
• USA monstrous budget deficit,
• big support packages for the national
economy, low interest rates, QE
• Stock market rebound
World trade up 25% since 2009,
back to pre-crisis levels, but stalling at 32% of global GDP
World merchandise trade volume, 2005Q1-2013Q4
Seasonally adjusted index, 2005Q1=100
Source: WTO Secretariat.
http://www.wto.org/english/news_e/pres12_e/pr676_e.htm
The EURO
Effects of crises in sum:
Bubble-inflated budgets shrink, at the same time
as bank bail-out, social benefits and industrial
support becomes necessary. In the wake of this:
austerity policies
in Greece, Ireland, Spain, Portugal, etc..
to restore budget balance/creditworthiness
to the benefit of the credibility and
stability of the EURO
China
Stimulus packages
Infrastructure investment
+ Command bank-lending -> growth and exports still slowing down
New monetary policy 2015
Unclear fiscal and financial situation
Of state, banks and regions
Stock market volatile:
And now?
Global rethinking of neoliberal narratives:
- Efficient market?
- Rational actors?
- Socializing losses, privatizing gains?
- Central banks/monetary policy effective?
- Global and national remedies enough?