1. Dr Maurice Mullard Lecture 4

2.  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 10 years see work Reinhart (2010) Reinhart and Rogoff (2009) also IMF website(imf.org)

3.  Thesis of a Savings Glut too much global savings not enough investment opportunities imbalance savings and investment  Debt and house prices low interest rates (Stiglitz 2010  Repairing lost savings (Haldane Bank of England)

4.  A Problem of Government intervention  Interest rates kept too low after Dot comm bubble and after 9/11 because of worry about deflation  Government subsidy to housing  Moral hazard after bank bail outs Bear Stearns Northern Rock Llyods Banks AIG  Bail out costs 16 trillion dollars  Created problem of too big to fail

5.  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

6.  Recession is this a  V sharp decline only temporary and soon return to normal  L Sharp decline and economy stays at stagnant level for a long period  W this is the double dip recession we already had one recession in 2007 forecast of new recession in 2011  U economy decline stays at low and slowly receovers

7.  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

8.  UK GDP has shrunk by 6 per cent that means GDP is now smaller than in 2007 difficult to recover lost production  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

9.  Coalition decision to reduce spending by 80 billion in next five years Forecast that we had recession in 2007 and we shall have a new recession in 2011 increases in unemployment dependence private and public sectors  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