The Economic Crises of Today
Cemus
8 October 2013
Erik Andersson
The crisis
10 min on questions pending after ”Inside Job”
2007 mortgage-/real estate crisis in USA
Spreads to Europe (Baltics, GIIPS, 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
Effects
• Layoffs/unemployment when investment and
consumption dwindled
• Real estate crash
• Stock market slump
• Soaring official budget deficits
• Flight to safety (gold, US bonds, etc)
Who was hit?
“Subprime” home-owners
Laid off workers
Savers
Who was not hit?
“Prime” home-owners
Shareholders
2009: Global crisis management
G8 turns to G20 and meets in London:
Result:
IMF gets 750 billion USD
OECD swear allegience to IMF
FSF 1998 -> FSB 2009 to oversee regulation on
financial market: “Basel II and III”
Free trade support
Credit/loans to the South
Business as usual was what was diplimatically
possible… No green recovery.
National crisis management
Bank support
TARP in US, Bank gurantees in Irland, etc
Industry support
Germany and US “cash for clunkers”
Subsidised (service) workers in Sweden
Low interest rate policies
Quantitative Easing in US and Japan
no inflation if money ends up on asset markets
2009 – 2012
Big corporate profits back, on smaller sales
/ Budget crisis in Greece, Ireland, Spain, UK, Italy,
Baltic countries etc.
USA:
• monstrous budget deficit,
• big support packages for the national
economy,
• weak job figures and stock market regains
World trade up 25% since 2009, back
to pre-crisis levels, but stalling
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-zone
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
- ”internal devaluation”
to restore competitiveness
2012
Negative growth in most of Euro-zone
Stagnant EU
In the South?
• South lightly hit in first instance because:
– Low financialization
– Big buffers built up after 1998 (trade,
commodities race, economic growth policies)
• Emerging markets exports dwindle but
recuperate with pick-up in world trade 2010.
• South-South investment.
The scramble for profit since 2009
• Portfolio flows to emerging market
– Excess liquidity (QE, LTRO, budget deficits) must
be invested somewhere
– Flight from low interest rates
– This pushes up exchange rate of receiving
countries
• China and Asia continue to run trade surpluses
and big foreign reserves, but:
China’s trade growth slowing down
Merchandise exports and imports of China, 2010Q1-2012Q2
(year-over-year % change in volume, not seasonally adjusted)
Source: WTO Secretariat.
China contd.
Stimulus packages
Infrastructure investment
Command bank-lending to regions and SOEs
Unclear effect
Real estate bubble
Unclear fiscal and financial situation
Of state, banks and regions
Stock market also down…
Greece?
• Government debt scheduled to be 179% of GDP by
2015
• Needs new financing
• Still pay exorbitant interest (low credit rating)
• Austerity policies continue (lower wages,
underfinanced and shrinking public services,
privatizations, etc…)
• GDP shrinking/negative growth
• Brain drain and growing informal economy
To sum up
The crisis is both fiscal, financial and industrial
hurting both North and South
more along social divide than geographical
middle and working class worst hit
the well-off group better off than ever
conventional crisis management so far
Big opening for creative solutions!!