The Economic Crisis of Today Cemus 26 september 2012 Erik Andersson.

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Presentation transcript:

The Economic Crisis of Today Cemus 26 september 2012 Erik Andersson

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 – 2011 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, weak job figures

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.

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

2012 Negative growth in most of Euro-zone Stagnant EU

China 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 Unclear effect Unclear fiscal and financial situation Of state, banks and regions Stock market also down…

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!!