The Economic and Policy Effects of the Global … Vi… · • Consequences Economic Stagnation ... (10) Excessive Leverage (11) ... Public Debt Legacy 2. Financial Crisis and Bailouts

The Economic and Policy Effects of the

Global Financial Crisis.

Outline of Presentation

• The Crisis• Economic Interdependency• Consequences

Economic Stagnation Fiscal Crisis of the StateParties and Policies

• European Union

Part One: The Crisis

• Twelve Causal Factors• Underlying Causes• Policy Response

Twelve Causal Factors• (1) Sub-prime Loans• (2) New Mortgage Products/Lower Standards • (3) Concentrated Asset Holdings • (4) Housing Price Declines

(5) Monetary Policy Tightening (6) Accounting Rules (7) Rating Agencies(8) Loan and Security Misrepresentation (9) Off- balance Sheet Activities(10) Excessive Leverage(11) Regulation(12) Home Ownership Social Policy

•

Underlying Causes

• Profit Drive• Risk Taking• Competition• Money Pools/New Markets

The drop in GDP during the recession from the fourth quarter of 2007 to the second quarter of 2009 was 5.1%, worse than initially projected. That marks the deepest recession since World War II.

Policy Response

Government Budget Deficits

Source: Wells Fargo

Part Two: Understanding Economic Interdependency

• Financial Balances (a micro example)• Financial Balances and the Economic

Sectors

private balance = govt deficit + trade balance

Part Three: Consequences

• Economic Stagnation

• Fiscal Crisis of the State

•Parties and Policies

Stagnation Causes

• Euro Zone Structure

• Globalization

• Asset Inertia

• Low Profit Expectations (consumer deleverage + housing)

Federal Reserve Bank of Kansas City

Recession Employment E G /Growth Months M

1975 15 60 .25

1980 – 1982 18 84 .21

1991 16 96 .17

2002 7 60 .12

2008 – 7/2009 .3 20 .02

Source: Bureau of Labor Statistics.

Fiscal Crisis of the State

1. Public Debt Legacy2. Financial Crisis and Bailouts3. Private Debt + Recession4. Obama Stimulus5. Private Deleverage + State Budgets6. Economic Stagnation

Parties and Policies

• Party Polarization• +• Historic Deficits• +• Entitlement Funding• =• Deficit Reduction Stagnation Lock-in

Part Four: European Union

• Euro Zone Structure

• Financial Balances

• Economic Stagnation

Dr. William Van LearBelmont Abbey [email protected]