The Economic Crisis of Today

Cemus 12 October 2015Erik Andersson

School of Global StudiesUniversity of Gothenburg

Today’s economic crises

How did it start? What happened and why?Tendencies now?

1997

CDS derivative invented Chinese monetary policy -> exportsUS stock and credit boom -> imports

US trade deficitChina saves in US bonds

2000

Dot com-bubbel bursts Low interest rates

Glass-Steagall act scrappedself regulation and rationality

CDO/MBS spreads

2001 9/11

War on terror & AfghanistanLower interest rates

US twin deficit Budget – from Tax cuts and warTrade

Asian & European trade surplusesSaved in US bonds

Asset price bubbleHousing bubbleDebt-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 USASpreads 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 marketLiquidity 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 supportTARP 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 workersSavers

Who was not hit?

“Prime” home-ownersStockholders

2009 – 2015 Big corporate profits back, on smaller salesStock-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

ChinaStimulus packages

Infrastructure investment+ Command bank-lending -> growth and exports still slowing down New monetary policy 2015

Unclear fiscal and financial situationOf 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?