Dr Maurice Mullard
Lecture 5
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Global Economy experience 122 financial
crisis since 1945
UK Experienced 8 recessions USA 7 since
1950
Definition of recession fall in GDP for two
quarters
Most recessions start in financial sector
banking crisis or housing bubble
Recovery takes about 5 years see work
Reinhart and Rogoff also IMF website
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Thesis of a Savings Glut too much global
savings not enough investment opportunities
Savings mainly China and Emerging
Economies
Buying US Treasury kept interest rates low
Assumptions about house prices
Repairing lost savings
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Public Sector deficits are unsustainable
Treasury bonds lower interest rates
Liquid markets saying there is no problem in
funding deficits
Is Reducing the deficit an issue of ideology or
economic necessity
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Savings and Investment
Savings higher than investment
Saving as individual issue and the collective
decision
Declining aggregate demand
Stimulus packages
Infrastructure expenditure as improving
capital
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Example of China stimulus plan improving
communications
US stimulus tax reductions
UK expenditure on capital projects
Recession is this a
V
L
W
U
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Temporary blip soon return to normal path
of growth
Structure of Economy is sound
Unemployment is voluntary
Prick the bubble of housing
Problem is now recession is in third year
UK forecast growth 0.5 per cent
Destruction of GDP equivalent to 5 per cent
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We shall stay in recession for a long period
Problem of structure
Too much reliance on financial sector
Need to find new growth sectors
Exports to china and India
Global imbalances
EU in recession as well as USA
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Forecast that we had recession in 2007 and
we shall have a new recession in 2011
Hurricane still to come
Falling house Prices
Decline in manufacturing
Reducing public expenditure
Interest rates already at zero
Where is growth going to come from