Global Financial Crisis - Five Key Stages 2007-2011 - Business - The Guardian

Global financial crisis: five key stages 2007-2011 | Business | The Guardian
http://www.guardian.co.uk/business/2011/aug/07/global-financial-crisis-k...
Global financial crisis: five key stages 2007-2011

From sub-prime mortgages in 2007 to the newly downgraded US debt status, the latest crisis point is unlikely to be the last
Larry Elliott, Economics editor guardian.co.uk, Sunday 7 August 2011 16.49 BST Article history
A trader at the New York stock exchange. The last four years have seen five key stages of the global financial crisis, with more likely to come. Photograph: Brendan Mcdermid/Reuters
9 August 2007. 15 September 2008. 2 April 2009. 9 May 2010. 5 August 2011. From sub-prime to downgrade, the five stages of the most serious crisis to hit the global economy since the Great Depression can be found in those dates. Phase one on 9 August 2007 began with the seizure in the banking system precipitated by BNP Paribas announcing that it was ceasing activity in three hedge funds that specialised in US mortgage debt. This was the moment it became clear that there were tens of trillions of dollars worth of dodgy derivatives swilling round which were worth a lot less than the bankers had previously imagined. Nobody knew how big the losses were or how great the exposure of individual banks actually was, so trust evaporated overnight and banks stopped doing business with each other. It took a year for the financial crisis to come to a head but it did so on 15 September 2008 when the US government allowed the investment bank Lehman Brothers to go bankrupt. Up to that point, it had been assumed that governments would always step in to bail out any bank that got into serious trouble: the US had done so by finding a buyer for Bear Stearns while the UK had nationalised Northern Rock. When Lehman Brothers went down, the notion that all banks were "too big to fail" no longer held true, with the result that every bank was deemed to be risky. Within a month, the threat of a domino effect through the global financial system forced western governments to inject vast sums of capital into their banks to prevent them collapsing. The banks were rescued in the nick of time, but it was too late to prevent the global economy from going into freefall. Credit flows to the private sector were choked off at the same time as consumer and business confidence collapsed. All this came after a
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period when high oil prices had persuaded central banks that the priority was to keep interest rates high as a bulwark against inflation rather than to cut them in anticipation of the financial crisis spreading to the real economy. The winter of 2008-09 saw co-ordinated action by the newly formed G20 group of developed and developing nations in an attempt to prevent recession turning into a slump. Interest rates were cut to the bone, fiscal stimulus packages of varying sizes announced, and electronic money created through quantitative easing. At the London G20 summit on 2 April 2009, world leaders committed themselves to a $5tn (3tn) fiscal expansion, an extra $1.1tn of resources to help the International Monetary Fund and other global institutions boost jobs and growth, and to reform of the banks. From this point, when the global economy was on the turn, international co-operation started to disintegrate as individual countries pursued their own agendas. 9 May 2010 marked the point at which the focus of concern switched from the private sector to the public sector. By the time the IMF and the European Union announced they would provide financial help to Greece, the issue was no longer the solvency of banks but the solvency of governments. Budget deficits had ballooned during the recession, mainly as a result of lower tax receipts and higher non-discretionary welfare spending, but also because of the fiscal packages announced in the winter of 2008-09. Greece had unique problems as it covered up the dire state of its public finances and had difficulties in collecting taxes, but other countries started to become nervous about the size of their budget deficits. Austerity became the new watchword, affecting policy decisions in the UK, the eurozone and, most recently in the US, the country that stuck with expansionary fiscal policy the longest. Last Friday, the morphing of a private debt crisis into a sovereign debt crisis was complete when the rating agency, S&P, waited for Wall Street to shut up shop for the weekend before announcing that America's debt would no longer be classed as top-notch triple A. This could hardly have come at a worse time, and not just because last week saw the biggest sell-off in stock markets since late 2008. Policymakers are confronted with a slowing global economy and a systemic crisis in one of its component parts, Europe. To the extent that they are united, they are united in stupidity, wedded to blanket austerity that will make matters worse not better. And they have yet to tackle the issue that lay behind the 2007 crisis in the first place, the imbalances between the big creditor nations such as China and Germany, and big debtors like the US. In the circumstances, it is hard to be wildly optimistic about how events will play out. Markets are bound to remain highly jittery, although it seems unlikely that American bond yields will rocket as a result of the S&P downgrade. Japan lost its triple A rating long ago and has national debt well in excess of 200% of GDP but its bond yields remain extremely low. The reason for that is simple: Japan's growth prospects are poor. So are America's, which is why bond yields will remain low in what is still, for the time being, the world's biggest economy. The dressing down given to Washington by Beijing following the S&P announcement was, however, telling. Growth rates of close to 10% mean that the moment China overtakes the US is getting closer all the time, and the communists in the east now feel bold enough to tell the capitalists in the west how to run their economies. Whatever it means for financial markets this week, 5 August 2011 will be remembered as the day when US hegemony was lost. All this is terrible news for Barack Obama. He has not delivered economic recovery. The US is drowning in negative equity and foreclosed homes. No president since Roosevelt has won an election with unemployment as high as it is today. Fiscal policy will be tightened over the coming months as tax breaks expire and public spending is cut. The Federal Reserve only has the blunt instrument of QE with which to stimulate the
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economy, and will only be able to deploy it after a softening up process for the markets that will take several months. On top of that, Obama will now be branded as the president who presided over the national humiliation of a debt downgrade. He looks more like Jimmy Carter than FDR. Not that the Europeans should get too smug about this, because what we are witnessing is not just the decline of the US but the decline of the west. One response to last week's meltdown was the announcement of talks between the G7 the US, the UK, Germany, Italy, France, Canada and Japan but while this would have been appropriate 20 years ago it is not going to calm markets today. Holding a G7 meeting without China today is like expecting the League of Nations without the US to tackle totalitarianism in the 1930s. There is no happy ending to this story. At best there will be a long period of weak growth and high unemployment as individuals and banks pay down the excessive levels of debt accumulated in the bubble years. At worst, the global economy will be plunged back into recession next year as the US goes backwards and the euro comes apart at the seams. The second, gloomier scenario, looks a lot more likely now than it did a week ago. Why? Because there is no international co-operation. There are plans for austerity but no plans for growth. Even countries that could borrow money for fiscal stimulus packages reluctant to do so. Europe lacks the political will to force the pace of integration necessary to avoid disintegration of the single currency. Commodity prices are coming down, but that is the only good news. We are less than halfway through the crisis that began on 9 August 2007. That crisis has just entered a dangerous new phase.
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Comments
41 comments, displaying first Staff Contributor truthANDbeauty 7 August 2011 5:31PM Obama will now be branded as the president who presided over the national humiliation of a debt downgrade. He looks more like Jimmy Carter than FDR. Sorry, but it's a bit more complicated than that. Anybody who understands the separation of powers in the United States will know that it is not that black and white. Gridlock often works to Recommend (11) Responses (0) Report
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America's advantage, but not this time. The Democrats no longer truthANDbeauty control Congress, so they will come out of this better than you. 7 August 2011 5:34PM Obama's poll ratings went down slightly, as expected; the Tea That should be . . . Party's have collapsed. The fear of a GOP extremist will keep a "The Democrats noside of Obama in the timeso they will come large chunk on the longer control Congress, for re-election in out of this 2012. November better than you think." HansZandvliet 7 August 2011 5:53PM Great and coherent overview of where we are and where we came from, economically. As for where we are headed, it still fails to take into account that we are at or near the peak of oil production. This fact will soon take over as the main driver of the economic downturn, when oil production starts its progressive decline. Indeed: "We are less than halfway through the crisis that began on 9 August 2007." It's worse than that: we haven't seen nothing yet. BombardierWells 7 August 2011 6:28PM Capitalism has collapsed. Even before the current crisis broke in 2007 the systemic problems were there. The seeds were sown by Reagan and Thatcher with their neo-liberal policies in the 1980s. They launched an agressive attack on working people, smashing their trade union organisations, destroying the manufacturing base of the economy, using high unemployment to weaken and demoralise working people, driving down real wages, privatising public services, deregulating the international banking and financial system and generally rolling back the frontiers of the state to give capitalism free reign to do whatever it liked. The gap between rich and poor increased, real wages and disposable income declined, those lucky enough to keep their jobs had to rely upon credit to maintain their standard of living. This was fueled by the increased availability of credit and by the boost given to the housing market by the introduction of the right to buy for council tenants. Everyone was encouraged to spend money they didn't have. The banks became increasingly confident that they could lend money they didn't have to people who couldn't afford to pay it back. They reasoned that the increase in property prices would allow them to recover their money in the event of any default. The problem now is that real wages have fallen so far behind prices that the economy can only sustain itself and grow if people continue to supplement their spending power with debt. But people don't want to borrow and banks don't want to lend. The engine is bust. Furthermore, capitalism is using the crisis to drive wages down further and austerity measures are leading to higher unemployment. In typical textbook fashion capitalism, by cutting wages also takes money out of the pockets of its
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customers. It is a viscious circle. HisHoliness 7 August 2011 6:55PM We need international co-operation, coordinated action, unity of purpose, effective planning. None of these things can be This is as good a place to repost my comment. provided by the anarchy of the market. We need an economic Money parkedis organised and planned, aChina doesn't need the system which in US treasuries is money system that meets for current the many and not just the few. We need a society that needs ofaccounts. The interest is paltry so its not there for the is money. A interests of in billions and not the billionaires. run in the $500 billionthe US treasuries is more than enough to back the Yuan as well as facilitate all her external trading accounts. There are dire consequences should the current monetary dynamics be disturbed from its current equilibrium. To repatriate humongous sums like $2 trillion into China will create rampant inflation in China. To over invest in other countries will bring online mineral and natural resources not even China can digest fully. It will cause a glut and a crash in resource valuations. That won't do. Any wild gyration in anything is bad for the global economy and very bad for all societies. China is prudent enough not to exploit her financial advantage. There are very few places China can park that large an amount of earnings. So China is pretty much stuck with putting them into US treasuries. As you all agree, for China to stop buying them will be disastrous for the US and the global economy. You better realize how sensitive the US is to any little change in this equation. It just takes a few tens of billions of dollars diverted to buy Eurobonds (which can yield as much a 6% compared to near zero for US bonds) to cause a nervous twitch in Wall Street and Washington. And Europe is hoping for more where it came from. The only other recourse is to create (print) more money through the European Central Bank and the Fed. Printing money may backstop further deterioration of the state finances of the chronic debtor countries but will not in any way create wealth with which to regain financial health. I say 'may' because it is already apparent that quantitative easing is not working for the US or the EU/UK In arguments about your (US and EU) state debts and your woeful inability to mitigate the problems be very clear that China is the only global economy that is keeping the global economic engine running. Try to gum up that engine and your doom will be instant. China will suffer of course but not to any great extent nor for any length of time. China is a continental sized country with the larger provinces equivalent to a Germany or a France in area and in economy, and with a larger population. Her internal consumption (1.3 billions is more than twice the populations of the US and EU combined at less than 700 millions) is more than enough to keep the economy humming along. What counts is not absolute wealth. What counts is the ability to source and purchase resources from anywhere in the world. This will keep her internal economy in good shape and with that the ability to produce a surplus to sell to the rest pf the world. Should the dollar or the Euro go down the toilet it won't affect China much for the rest of the world will accept the Yuan to pay for their exports to China and use the same currency to pay for imports.

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These products range from the cheap consumer goods at Wyndley1857 WalMart 7 August to sneer at but cannot do without to you like 2011 7:24PM mega-infrastructure projects such as roads, railways, ports and BombardierWells airports, power stations, dams, office buildings and much more. We need international China's trade policies. Your Your woes are not caused by co-operation, coordinated woes action, unity bankers flouting the most fundamental are caused by yourof purpose, effective planning. None of these things money management and stweardship. principles of good can be provided by the anarchy of the Before 2007 market. We needwere in awe of the ability of is Chinese officials an economic system which Wall Street organised and planned, a system that meets nothing. You and the City to manufacture windfall profits out ofthe needs of the many and not just the few. We need people now all agree that your bankers, politicians and money a society that is run in Now a successful billions or were frauds and tricksters.the interests of thefraudsteranda not the billionaires. trickster is a much admired person. He's got the loot. But unfortunately your lot wiped out the wealth of your countries Could not agree more with your post. and many foreign countries as well. However, we need to ask ourselves why the Soviet Union went 611 comments as I am writing thisthe societymoreandcome. This so off the rails since, presumably, post with you to I both wish must be a record. Practically all are criticisms with none offering for will have to ensure that sociopaths - like Stalin - don't get to a way out. Also note that there is a total absence of the top. commentators from the fifty-centers. This implies that the fiftyOne of humanities inbuilt failingsthere is no need to gloat. centers know China has won and is something called 'dominance hierarchy' which, very broadly speaking, divides us into leaders and followers. Knowing ourselves better might be a good starting point; implementing separation of powers, limited times any one person can spend in office, are a start, but as experience in the US warns us, they have the work-arounds. Dominance hierarchy is accompanied by tribalism, as current UK party politics demonstrates only too well. SimonWierny 7 August 2011 7:28PM There is no happy ending to this story. At best there will be a long period of weak growth and high unemployment as individuals and banks pay down the excessive levels of debt accumulated in the bubble years. At worst, the global economy will be plunged back into recession next year as the US goes backwards and the euro comes apart at the seams. The second, gloomier scenario, looks a lot more likely now than it did a week ago. Why? Because there is no international co-operation. There are plans for austerity but no plans for growth. Even countries that could borrow money for fiscal stimulus packages reluctant to do so. Europe lacks the political will to force the pace of integration necessary to avoid disintegration of the single currency. Commodity prices are coming down, but that is the only good news. What a lot of rubbish written in pure economical contracting judgements. Get a life Larry and quick! One line you shout about austerity being all that is bad now and the next you about the need for banks to pay down the excessive levels of debts. Remember Larry economy is not as simple as one writer's

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opinion so try next time provide a balanced approach to a very chasm complex subject. This means that both austerity in some areas 7 August 2011 7:53PM and investment in other areas is needed. Falling comodities will Long things of stagflation ahead. And inflation will of fortune boost period back as they are overpriced by a group suit a lot of Governments, muslims, american corporations and debts. So making greedyas it will reduce the real value of their others who much easier thanup price and implementing to find decent job. without pumped making would not be able difficult decisions. But back to the case. Germany aim is to get matters a bit more dramatic jericoa could influence market consolidation to drive so they 7 August 2011 7:53PM their vision of economic stability in Eurozone - you think they want Deutch mark to be back considering that despite Euro Sustainable low zone an oxymoron. being in the growth is they have growth??? I seriously doubt that. Math of numbers is clear and as soon numbers get to the positive Without this fantasy growth potential the UK in particular will after the slampa fairly short time, have to get used to living probably, over then we back to the real life. standards more akin to former eastern bloc countries. There is no escaping this actually, it is already set in stone. I hope our society has not been eroded to the point where that hardship will cause some form of social collapse. There is an alternative vision to be had which could bind the nation together again and give a meaning to the suffering to come. This vision is thoroughly researched and viable but never gets airtime because the first step is to nationalise all banks and energy companies.. the very people who, via backroom leverage, not via the ballot box wield a huge amount of power and influence in politics and policy. They are the ones who lobbied for the relaxation in the rules brought in after the great depression to stop this misery happening again. They are the ones whispering in the ear of politicians to intervene in Libya.. and not Syria. It is there for all to see. Until that backroom cabal supported by lawyer politicians is broken up we are on a hiding to nothing. When economies are so advanced techknologically that they can no longer grow, the truth becomes exposed, the politicians, bankers and corporations can be seen naked, desperately trying to pull the same manipulative levers, but with the physical limits of growth reached they will be to no effect, the people will see them, there will be some chaos, followed by deep change. good luck all descent people, time for you to come together again and form and unstoppable positive force, we are in the overwhelming majority, peaceful, reasonable, not greedy and productive people whom the parasites are utterly relient on. Know it, own it and this thing can be turned around in a decade and leave apositive legacy for our kids. If we don't.. im sorry but we will turn upon each other and well.. it does not bear thinking about frankly. irvingp63 7 August 2011 8:08PM There's plenty of room here in Canada, sorry no banksters.

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labourpower 7 August 2011 8:13PM Too late Larry! Do I sense that you still think there is an outside chance that our economic and political masters might come to their senses? You need to understand the mentality of the bourgeoise individualist who can't think outside the ideological prison of the FREE ENTERPRISE SYSTEM which naturally guarantees their whole raison d'etre through the eternal right to exploit the rest of us for the accumulation of wealth, regardless of the consequences! The rich are like obssessive betting shop punters who gamble ever more desperately after every loss in order to retrieve their capital. What's more, when the've savaged each other to the point where most capital is wiped out and the vultures like Goldman Sachs have cleaned up the remaining assets in fire sales. They will then turn nasty and look round for scapegoats. How does the old music song go! It's the rich wot gets the gravy It's the poor what gets the blame! I'll let you fill in the next line. petebro 7 August 2011 8:14PM Cancel the unrecoverable debt and set a realistic ceiling for future borrowing , unless we start from a sound financial base we will not move out of recession . We have got to set the bar at the right height for home borrowing and allow for redevelopment and growth of new industries , based on the ability to pay . If we have managed to clear our deficit then we are solvent and this should allow for continued spending . The lessons of having unregulated banking systems is we can,t see the money disappear ? So if we have unrecoverable debt written off and agree to payback what is recoverable then this should allow for continued growth. Growth should hit a cieling as should borrowing , this is how the new regulations should work, market and seasonal trends can be accommodated .The realistic policies should encourage sustainable growth. petebro 7 August 2011 8:18PM The energy crisis looming will cause a downturn if we do not act know and develop new sustainable developments in housing and industry. The build up or build out policy and plan for green living should be given real incentives and coastal development maybe necessary .The utilisation of space for capital development and new industrial development creating employment , investing in future industry and
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maintaining a sound industrial base . Attracting investment that petebro is freed up August 2011 banks. 7 from world 8:22PM The new energy can only be made sustainable if we utilise wave power , wind power or create a global energy commission to import and export green fuels this should be encouraged by world investors as the industries of tomorrow . Plan,invest and develop. The is demand to right off third world debt and encourage development largely based on the currency strength or underpin developing countries by surety , ie what materials can be purchased as surety yet sustainable. petebro 7 August 2011 8:31PM The real emergence of developing nations is being restricted by bad debt . We should have a common policy based on the ability to pay , righting off bad debt and allowing future developments in industrial and home markets encouraging export at supply and demand basis. The world banking system should be inline with energy demands borrowing for the emergence of new industries .The uk has not utilised or maximised its coastlines for development and the future utilisation of building high rise is set to grow.Industry has to respond to that in being able to grow and reach acceptable levels of industrial output.The globalisation and greener futures has and can only be met by sustainable development and zero rated housing , this can only be the way forward .The borrowing and deposits on home ownerships should be a realistic target for young people entering the housing market, fixed rates and surety.The housing market needs to accomodate population growth , this should encourage industrial growth. The need for greener living depends on sustainable development of a longerterm power generation. The world production of power from space and from the sea . If we are allowed to expand our economies it will be based on sustainable and renewable energy to allow industrial output to stimulate growth. petebro 7 August 2011 8:39PM If we harness sea power stations and turbines and utilise coastal areas , we need to increase the available land for crop production and stabilise food prices to meet the necessity of eradicating starvation. The terra forming of areas of land for future energy production of food relies on water and glass which we have in abundance. Space stations radiating heat into desert regions around the equator and exporting on demand , storage of energy and the production of food.The energy crisis will effect everyone on this planet and can be dealt with to stabilise world fuel

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shortages.Industrialised nations and new areas of growth need a petebro good energy polict2011 8:46PMThe farmland required for cars 7 August at low costs. and haulage can not be met unless we produce and terra form The that is not being utilised. The greener areas relies on a landreal need for future development in allpolicy should stabilise sound financial policy. oil output and gas and can only be achieved with a one global A sound long term future cropenergy policy that is globally energy policy .The renewable production of fuel sources may excepted.Space not being used put back into production. rely on the land power production of solar energy and collection farms , wave power turbines and dams. Sustainable development of both housing and industry.Industrial output for home markets and abroad , sound financial policy for home ownership with disposable income,setting the bar at the right height.With due regard to national debt inflation capped inline with interest rates , allowing for seasonal trends and fluctuations bringing stability to the financial markets,preventing currency hijacking by proper regulations as regard to exchange rate mechanisms.The steady state economy we all dream of is within our grasp it just needs a determination on our behalf to become responsible , be able to change. The socio economic globalisation and sustainable growth .The right cooperation from all nations allowing and supporting the right rate of growth. petebro 7 August 2011 8:57PM The future relies on space and sea exploration to develop sustainable energy sources.The utilisation of existing energy sources and phasing in new power plants in line with demand , growth over longer terms and plan for four times the growth over twenty years of for casting should allow industry to make necessary transitions in line with demand with the right financial backing. The future relies on a determination to globalise and have socio economic harmonisation. The right way of thinking is a pyschological ethos .The one world one god one belief in religious quarters , the sense of social cohesion and structure. The one world order and the trust that should be developed soley relies on seeing were you fit in .Education has to meet the demands of tomorrows world and industrial partnerships built on local employment being met by locally educated people. The way we think and the way we live . That allows religious freedoms and social cohesion ,the global dream being realised ,the social harmony .The globalisation is taking place and should to build a cohesive society were we all fit in and have got the ability to change ,the socio economic revolution , the right policies and forward thinking status quo . The growth of population accomodated for in sustainable living. petebro 7 August 2011 9:05PM The global financial crisis can only be solved by righting off debt and recovering over the longer term what is recoverable. Third world markets can modernise and grow with financial backing

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underpinned by sound global economics low risk high yohodi returns.Restructuring financially , free the world from 7 August 2011 9:06PM unrecoverable debt . Capitalism works..it just has to playing field The future relies on a new levelbe regulated. with regulated This whole theatrical financial collapse is due to the sheeple 'us' financial base. taking for granted that money didn't need toif we cannot get out The fact is we cannot move out of recession be earnt....(Just as we were supposed to do). of debt the financial stalemate. The have got to allow growth in Economic match demand. industry toineptitude, massive corruption, and a blind eye turned by the ruling(political) new technology and research and good The investment within 'elite'?...... We borrowed money from the industry and business policies meeting the criteria of money lenders, who borrowed it in turn from the gangstas.... .Employment and jobs will emerge as industry is allowed to grow The depends on a system needs a base with a recoverable amount this whole rotten good financial clear out, starting with parliament.... of debt and restructuring , allowing growth in emerging 'Ye have sat for to long for economies and industry. any good ye be doing, in the name of god go!' The energy has got to renewable ,cheap and sustainable . Wishful thinking , but we need it to happen. gpjcyprus 7 August 2011 9:12PM The sovereign defaults are coming.

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Gico 7 August 2011 9:14PM Obama could've avoided all these by putting forward a really decisive stimulus that would've quickly turned around the US economy at the onset. But he has played politics instead. He has reduced the stimulus as a concession to Republican opposition. The slow recovery of the US economy has caused an electoral backlash that ironically saw the Democrats losing their majority to the Republicans in the House of Representatives in the following mid-term election. Having lost this critical majority, Obama seems no longer able do anything more for the US economy. But the Republicans have overplayed their hand in the debt ceiling issue. They've have lost favor from a huge majority of the electorate as recent polls suggest. The US debt is actually a medium-term concern that Republicans have successfully made urgent. But their arrogance has not found favor with majority of the electorate. If elections were held today they would lose both their bid for the presidency and their narrow majority in the House of Representatives. Obama now has a chance to put forward a credible second stimulus. He can also shift the the discourse towards the urgency of reviving the economy first. He can argue more strongly that a revitalized economy would make it more easier for the US to deal with its debt with more tax revenues forthcoming. Republicans would have serious difficulty 'refudiating' this argument on account of the recent dismal outcome of doing too little, not to mention, the obvious lessons of past recession

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history. Obama could've invoked the lessons of past recession esotericben history to justify a 2011 10:10PM 7 August more potent economic stimulus in the first place. But, for some reason, he hasn't. I can't help but think a little less growth is no bad thing. The This is where the problem really lies. Obama seems unsure of his global ecological footprint of humans already outstrips global priorities. Christina Romer, former Chairperson of Obama's resources (we currently need about another 0.4 of a world); with Council of Economic Advisers, has stated on TV recently that China's consumption growing rapidly this is hardly going to get perhaps the stimulus should've been larger but Congress got in better. We need to balance our books with the world, and live the way. But Obama has majority in the House of less lavishly - maybe a bit of financial crisis was exactly what we Representatives then. He could've forced through a really needed. significant economic stimulus if he wanted to. Cristi Romer has also stated she's optimistic that another PeterS378 stimulus 7 August 2011 10:41PM is in store. But Obama is silent. Christi Romer is right that the US economy is never ever going toAugust 2007 began with... a really big Phase one on 9 move forward now without kick in the behind. Obama should take the chance. He has If you think the "global financial crisis" started in August 2007 nothing more to lose. This is his chance to make a strong come then you haven't understood it. back. This is a bit like starting an analysis of a plane crash by considering what speed it was doing when it hit the ground. MercyCroft 8 August 2011 1:01AM Those who have pawned their gold better get back to Cash Converters quick. MattDrayton 8 August 2011 3:03AM Crises are, as it were, the irrational rationaliers of an always unstable capitalism - David Harvey christopherw303 8 August 2011 4:46AM Virtually the entire western world is caught in never-ending debt trap. For as long as our governments are forced to borrow ever larger sums of money to cover our old debts, it is mathematically impossible for society to ever pay all of its bills. Under the current monetary system, there are only two possible outcomescrushing deflation, or rampant hyperinflation. A better world is possible- if only the general population were to understand the nature of money, and its creation. We must demand a system of low-cost, interest-free social credit, issued on an as-needed basis for the greater public good. Until that day comes, I believe that gold and silver remain the safest place to invest your money. http://superiorbullion.com/news.html medbutdin 8 August 2011 6:49AM

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No mention of China's under-valued currency of last 20 years becarefuloutthere stripping8 August 2011 9:16AM base and wealth of other nations out the manufacturing - not just the West? I'm no economist, but surely this has had a BombardierWells role in the state of nations current finances and economic woes. Your analysis is, I believe broadly correct, that globalisation has seen a huge transfer of wealth from employees to shareholders. Those shareholders being inusrance companies and pension funds in the main. And that to keep the false measure of GDP in countries with huge trade deficits bouncing along nicely, debt has been made too freely available. But I think your conclusion over capitalism being dead is wide of the mark. Nerely the form that grew up from the 1980s onwards. The Regan-Thatcher paradigm that low taxes encourages entrepreneurs and everyone else benefits from a trickle down effect. The loss of the indutrial unions has seen the public sector ones become the main funders of both the Democrats and Labour, so another paradigm has arisen - that public sector employees are somehow special and deserving of special treatment, eg.. lack of competition and gold-plated benefits. HisHoliness I think you are too hung up on the numbers and miss the basic truth of economics - it's about people and the way they think, i.e. psychology. With huge balance of trade surpluses neither Germany nor China can be considered drivers of global GDP. Numerically, their figures stand out. But if no one buys then no one sells. As Larry Elliot points out it is the trade imbalances that lies at the very heart of this problem. Those trade imblances, in order to continue, requiring both personal and sovereign increases in debt. That process has now, more or less, reached the end of the line. The impact of this debt/imbalance issue has hit the Eurozone and the USA. So expect China's surplus to dimiish dramatically. Selling to themselves is an option but that requires Chinese wages to rise, as they are. This combined with quite high inflation in China undermines their competiveness further. IIn addition, history tells us that as people acquire wealth so they desire political influence. China at the moment cannot permit a mild-mannered artiist to collect a Nobel Prize. For some reason it maintains the dictatorship in N Korea that looks like a very loose cannon. This is not a nation heading for the first rank. Its size gives it importance but its political system is a drag on it. Germany's surplus with other Eurozone members will obviously diminish. Austerity in Greece, Ireland, Spain, Portugal, Greece and increasingly in the UK will just lose those markets. Unless German taxpayers are willing to support other Eurozone countries and their importation of German goods those internal imblances will largely disappear. Remember when the crisis first struck Germany's GDP fell sharply. It was only the increasing sovereign debt that boosted that GDP. That boost is now over. Something will emerge from all this but it will bear little resemblence to the last 30 years
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truthANDbeauty bradfudbantam 8 August 2011 9:33AM 10:22AM The rich should cancel the debt of the poor. China could start by christopherw303 cancelling US debt. We must demand a system of low-cost, interest-free social credit, issued on an as-needed basis for the greater public good MontyMalachi I need 10 million to buy a private plane. 8 August 2011 11:10AM It's no longer bankers or investors who decide to buy or sell; it's increasingly machines. - JP Morgan buys supercomputer firm - Computer generated buy/sell orders are three quarters of the market., with orders being created with microseconds of a stock, bond or currency changing value. Summarized: the politicians can hold all the press conferences they want; announce all the measures they need. It doesn't matter. The computers aren't listening to them. timbotaxi 8 August 2011 11:11AM I find Larry's analysis bleak yet compelling. There are no easy solutions to this crisis and the world as we know it is in a state of flux. These changes in one country's hegemony are not new, the UK lost it's control in 1945. No doubt there will be other switches, its just that this one is happening on our watch. Capitalism is a bad system, but we're not in a position to replace it yet. And despite romantic nods to some utopian communist ideal we would be better to try and reform what we've got. On an optimistic note you'll find that humanity works better when its collective back is to the wall. This crisis bad though it is, is not as bad as the Great depression and we came through that and will come through this when our leaders realise that we need a co-ordinated response toward it. harmonyfuture 8 August 2011 12:28PM The ratings agencies rate worth Banks raid, profit, ruin, create imaginary wealth Governments are impotent, we lose. AliAlgiers 8 August 2011 2:08PM as long as you ignore the debt problem, I feel like you ignore the whole problem you can not borrow undefinitely. there is a limit. it's available for both individuals and STATES angelito2
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Koolio 8 August 2011 3:14PM 8 August 2011 3:54PM As Chinese government is reluctant to revalue its currency, then rest of the world are devaluating theirs. Each episode is marked by the panic response and the short-term fix. Yet every time structural reform is dodged. Stimulus plans can buy you time but little more. They need to go with reform to the underlying economy but this has not happened. bonds 8 August 2011 4:02PM Excellent piece and comments. Unfortunately real change will only come about by direct action taken by millions around the world. The real power brokers have simply too much power, they've totally ignored well informed economics in the past and will continue to do so. The fact that nothing changed and the bankers continued to pay themselves huge bonuses after 2007 proves this. How do you get junkies to give up smack when the junkies are in charge and have huge standing armies to call upon to protect their addiction. HisHoliness 8 August 2011 6:34PM @ angelito2: 8 August 2011 3:14PM As Chinese government is reluctant to revalue its currency, then rest of the world are devaluating theirs. Doesn't work.The Yuan is pegged to the USD and is allowed to vary only within a very narrow band. Furthermore China is one of the few countries left that still maintains capital flow rand exchange controls. The Yuan is not convertible. You cannot buy and sell Yuan in the open market, not in any significant amount* anyway, and speculate on its movements. Furthermore no hedge fund or bank can attack the Yuan as China has more funds to defend her currency than anyone or any combination of funds. Residents of mainland China cannot speculate in foreign currencies either as foreign currency accounts are operated only under very strict rules. Man. One gets to sleep very well when one is immune from financial speculators. *[There are practically no restrictions on Yuan transfers to pay for real goods that is the basis of ordinary commerce.] HisHoliness 8 August 2011 7:00PM @ becarefuloutthere: 8 August 2011 9:16AM
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I'll need a bit of time to come up with a good reply. Figures Freshexpress matter very much.2011 9:38PM 8 August In the meantime everyone should read this article. There seem to be an awful lot of defeatists. Lets get a life and look forward! SPENGLER End of the road for hedge funds http://www.atimes.com/atimes/Global_Economy Comments on this page are now closed. /MH09Dj02.html The American government won't go bankrupt, China won't sell its holdings of US Treasuries, and the world's Asian growth epicenter isn't going to roll over and die. The bubble that has
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now been popped represents a liquidity event, not a true crisis in the mode of 2008, and the end of the road for the overstretched and overpromised hedge fund industry. (Aug 8, '11) Selected quotes: 1. the reason for the downgrades is that hedge funds have crippled out. Hedge funds can't earn the 15%-20% returns they promise investors in a world of 3% bond yields and 2% gross domestic product (GDP) growth. 2. The nearly $2.6 trillion of hedge fund assets constitute the system's only real bubble: too much money chasing too few returns, with a lot of fingers on the recall button. As of May, equity hedge funds with $1.25 trillion in assets had strongly net bullish positions. They are stampeding to get out. Their overwhelmingly bullish bias left them vulnerable to a wave of redemptions, what has happened to the real-money investors who require the income that only the equity market can provide? No-one can fund a retirement on Treasuries yielding 2.4%, or a corporate bond index yielding less than 3.5%. 3. The US government won't go bankrupt. China won't sell its Treasuries (who would buy them?). 4. The bubble that has popped here is not American government debt, but the overstretched and overpromised hedge fund industry. It's impossible to tell how long the liquidation will continue. But the stock market today does not run off fumes as in the dot-com days of the 1990s, nor off the phony profits of ultra-levered financial companies as in the 2000s. Corporate America is flush with cash, financially sound, and making better money than ever before.
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Global Financial Crisis - Five Key Stages 2007-2011 - Business - The Guardian

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