1. The mechanisms and narratives of crisis
2. The sequence of events
3. What is to be done?
MECHANISMS AND NARRATIVES
1) the passing of time and
cycles of memory
2) The end of history
3) Freedom = deregulation
4) Securitization and the “taming of risk”
5) The power of economic ideas
6) Discipline and punish
7) Inequality and its discontents
8) The revolving door
THE SEQUENCE OF EVENTS
OR HOW THE ECONOMY WENT OFF A CLIFF
Blowing bubbles 1: the US and global stock
market bubbles (1987-2010)
14000
DJIA & Nikkei
12000
10000
8000
6000
4000
2000
0
DJIA (USA)
FTSE 100 (UK)
Nikkei 225 (Japan)
45000
40000
35000
30000
25000
20000
FTSE
16000
15000
10000
5000
0
13
Blowing bubbles 2: the US and global housing
bubbles (1997-2007)
14
Blowing bubbles 3: the global commodities
bubble (1997-2009)
1200
140
1000
120
800
Gold
Oil
600
400
200
0
100
80
60
Oil
Gold
40
20
0
15
-2.0%
2000-I
2000-II
2000-III
2000-IV
2001-I
2001-II
2001-III
2001-IV
2002-I
2002-II
2002-III
2002-IV
2003-I
2003-II
2003-III
2003-IV
2004-I
2004-II
2004-III
2004-IV
2005-I
2005-II
2005-III
2005-IV
2006-I
2006-II
2006-III
2006-IV
2007-I
2007-II
2007-III
2007-IV
2008-I
2008-II
2008-III
2008-IV
2009-I
2009-II
2009-III
2009-IV
2010-I
2010-II
2010-III
2010-IV
Falling asset prices hit the real economy
2 per. Mov. Avg. (GDP Growth (% annualized) SAAR)
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
-4.0%
-6.0%
-8.0%
U.S. Bureau of Economic Analysis (BEA)
16
U.S. Bureau of Labor Statistics (BLS)
1/1/2010
8/1/2009
3/1/2009
10/1/2008
5/1/2008
12/1/2007
7/1/2007
2/1/2007
9/1/2006
4/1/2006
11/1/2005
6/1/2005
1/1/2005
8/1/2004
3/1/2004
10/1/2003
5/1/2003
12/1/2002
7/1/2002
2/1/2002
9/1/2001
4/1/2001
11/1/2000
6/1/2000
1/1/2000
8/1/1999
3/1/1999
10/1/1998
5/1/1998
12/1/1997
7/1/1997
2/1/1997
9/1/1996
4/1/1996
11/1/1995
6/1/1995
1/1/1995
And unemployment rises
(1995 – 2010)
25.00%
U3 is the measure on unemployment you hear on the news (ORANGE).
U6 (BLUE) is the broadest and ILO compliant measure.
20.00%
15.00%
10.00%
5.00%
0.00%
17
…which hits consumption…
PCE Expenditures (% change QoQ)
Personal Savings Rate (%)
8.00%
6.00%
4.00%
2.00%
0.00%
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
-4.00%
1995
-2.00%
-.7%
-6.00%
BEA
18
To stop this cycle, governments took on
debt so the private sector could
pay back debt
Fiscal Balance of Advanced Economies as a % of GDP
1%
0%
-1%
-2%
-3%
-4%
-5%
-6%
-7%
-8%
-9%
-10%
1999
2000
2001
International Monetary Fund
2002
2003
2004
2005
2006
2007
2008
2009
19
The bailout in U.S. history
BUT it is necessary to remember where all this debt
came from
Source: IMF Fiscal Monitor 2010 – total = 39.1% average debt increase
The temperature rises in Europe
…and bursts into flames
…the fire brigade is not cheap
But we are all very, very connected
Who is in bed with the “PIGS”?
What makes a “PIG”?
(Central government debt as percent of GDP, 2010)
Source: Standard & Poor’s from national sources
And what makes a champion:
The sources of Germany’s competitiveness
What to make of this?
Or this?
Suppliers need consumers
The burden of adjustment for high levels of debt
is borne through greater unemployment
and the slashing of public services
AND austerity has limits in democracies
Greek woes
and growing support for extreme right parties
A world of debt
…forgive our sins
and save us from debt
The neoclassical solution:
repay debt, cut spending and wait it out
Why austerity is not the solution
http://www.youtube.com/watch?v=go2bVGi0ReE
THEN WHAT IS TO BE DONE?
Reduce inequality through taxation
Make government services better
…and reregulate finance
The role of civil society
Lessons from ICELAND
Lost in translation…?
-
Nationalize failing banks
Devalue the currency
Put capital controls in place
Default on debt
Make taxation more progressive
What to do???
Insert your own ideas here!!!!!
Thank you!