What really went wrong in the 2008 financial crisis?

This article is a discussion, by Martin Wolf, of Tooze’s book on the ten years since 2008.

What, finally, are the biggest results? One comes from Tooze’s remark that “the optimistic dogma under which democracy and markets were seen as necessary complements — the mantra of the aftermath of the cold war — was dead. In its place the crisis had put a more realistic awareness of the potential tensions between the two.” This is surely right.

Yet another of these big results is that power and politics are back. US power dealt with the crisis. German power shaped the eurozone’s response. Rightwing politics reimagined a financial crisis as a fiscal one. A similar politics also shifted the emphasis from the dangers of economic insecurity and inequality to the threat from immigration. The crisis has, alas, awoken the sleeping ogres of fear and hatred.

How, if at all, will liberal democracy survive the age of Trump, Brexit, Putin and Xi? That is the biggest question raised by this transformative decade.

Continu reading amp.ft.com/content/e5ea9f2a-8528-11e8-a29d-73e3d454535d

My contribution “The World Has Changed, …”

You will find below the link to an article, “The World Has Changed, and There Is a Need for Proactive Fiscal Policies” that was published in “International Banker” in the January issue.
It analyses the economic outlook and the risk associated with imbalances in the economic policy mix

“There is an economic and political malaise in many developed countries. For most of them, their growth profile is lower than what it was before the 2007/2008 crisis. In the US, the trend growth is marginally above 2 percent, and this cycle is the weakest since World War II. And even if the unemployment rate is low, close to full employment, the perception is that there are still rooms for improvement, but in an environment without wage pressures. This is a new situation…..”
Read here

 

Uncertainty on financial markets: the role of central banks

Stock markets are trending downward very rapidly everywhere in the world. In France the CAC40 has lost 13.8% of its value since the beginning of the year. At the same time, interest rates converge to 0% or below. In Tokyo, the 10 year government bond yield is now below 0%. According to the FT yesterday, the volume of government bonds that is traded below 0% has now reached USD 6tn close to one third of the market.

How can we understand this phenomena?
Financial markets momentum depends mainly on expectations. Those latter are usually conditioned by economic prospects. But it is not sufficient at this moment. Communication from central banks is key to understand the current financial market behavior. Continue reading