Global Economic Crisis Flashcards
(37 cards)
What did Bermeo and Pontusson think was the most common response to financial crisis?
- Fiscal stimulus was used in most countries; but these varied (and were restrained by the risk of a debt crisis - especially in European periphery countries)
Bermeo and Pontusson 2012 argued that fiscal stimulus was used in most nations after the global economic crisis. However what did they think about this as a trend?
- Fiscal stimulus followed no specific trend: there was no obvious connection to left parties or an obvious consistency between types of capitalism
e. g. no LME / CME consistency.
Fiscal stimulus that Bermeo and Pontusson argue was the biggest reaction to the GFC means what in most cases?
- Fiscal stimulus was largely about tax cuts rather than spending increases, what Pontusson and Raess referred to as liberal keynesianism rather than social keynesianism.. No move away from ‘workfare agenda’
What did Bermeo and Pontusson 2012 say happened once the immediate threat of depression was avoided?
- They concluded that most countries then moved quickly to an austerity agenda to attempt a debt reduction
Periphery Eu countries with sovereign debt crises were forced by the EU to do what?
adopt austerity responses (Bermeo and Pontusson 2012)
Why was the US response so expansionary?
McCarty 2012: 218
- Fianncial crisis started in the USA so all eyes were on it.
- lower economic constraints - especially due to flight to security of US treasuries’
- offest by reductions in state level / local spending
- Delayed by the timing of Obamas election meant that more happened at once
- you would think that the US would be the biggest free market economy but this was not the case, it was one of the biggest advocates of public spending in this period to avoid serious crisis
by 2012 how much had sovereign debt holdings increased for most OECD nations
- Most had between 50% and 100% rise in debt holdings (Schäfer and Streeck, 2013)
what does Streeck argue about contemporary governments?
- they are struggling to respond to the challenges that contemporary capitalism represents
What are the two ways to think about debt?
- Spending too much
- Not taxing enough
Between 2008 and 2010 France, Germany, US, Sweden, did what according to Pontusson and Raes 2012?
They all had consensus to increase spending (hence why if you look at the statistics on discretionary spending they all have positive variants in comparison to previous years)
e. g. US 0.47 (1980s) to 1.39 (2008-2010)
e. g. Sweden -2.76 (1980) to 0.00 (2008-2010)
(measuring fiscal stimulus per one percent contraction of GDP)
Pontusson and Raes argue that between 2009 and 2008 all nations did what in order to respond to the crisis? (France, Ger, US, Swe)
- has had some degree of tax cutting.
Genschel and Scwarz 2013 noted what theme in all forms of taxation?
2007 - 2011
Why would they do this?
- Tax cuts were mainly personal but this also went as far as corporate too e.g. Sweden (-1.7%), Germany (-8.9%)
(in the hope of spurring investment)
Cameron 2012 shows what between 2008 2009 in the wake of the immediate crisis? Why?
Virtually all countries initially tried to deal with the crisis by reducing taxes and increasing spending –> leaving the debt crisis to deal with later.
What countries immediately decreased tax rates following the financial downturn?
- US, Vietnam, UK, Russia, South Korea
- Controversial as it means a deficit in spending and need for higher taxes and spending cuts later on
(US $800 billion two year stimulus package was comprised of tax cuts in the crisis)
Cameron 2012 shows that
- in 2010 bascially all governments tried to deal with crisis by reducing spending and austerity measures
What was the Impact of the GFC on contemporary democracy?
- Austerity and decline of state capacity –> potential impacts on democratic accountability
- Rising discontent?
- New patterns of political participation (indignados / Occupy)
- Increase of far right
- Re-Polarisation of party systems?
interesting point to consider?
- was it a post 2008 crisis or a more long term problem of capitalism?
What caused the crisis in 2007-2008?
- Toxic assets of US mortgage market began to weaken financial institutions in the US, Ireland, Germany and Britain (Bermeo and Pontusson)
international institutions proved incapable of doing what?
- play the ameliorative role that many envisioned: incapable of preventing the US mortgage crsiis from becoming global, The EU failed to take the early measures that might have softened the blow
Germany France, Ireland Japan Portugal, Spain, Nordic countries and USA all managed what that Greece couldnt?
- restoring growth for at least one quarter before the end of 2010, ** even Greece managed a short lived rebound at in the first quarter of 2011
Why did the Sub Prime mortgage crisis of the USA spread globally?
- because financial institutions in all major nations were unable to control their direct and indirect exposure to high risk lending
- First quarter of 2009, 25 of Eu member states experienced negative GDP growth
- High interdependence of the EU contributed to the depth and spread of the recession
What do Iverson and Soskice say were the two mistakes made by the international community?
- Firstly failture to regulate the high risk lending activities by a small number of large and interdependent financial institutions
- Second was a failure to regulate global trade imbalances
Describe how flow of capital from countries with trade surplus to countries with large rates of return on financial assets can mean recession
- Nations in trade deficit (ie more export than import revenue export revenue in form of loans)
- If they get worried they wont get it back they will cut the loans.
- When loans cut deficit nations like the US have to export more to make up for this, but that requires import demand, if import demand is not there = only choice to lower import tax
but that require export demand if this is not there however the only result therefore is less import spending
- less import spending means for exporting nations they then go into recession too because nobody is buying their products
- recession for that country means that there is a decline in demand for its goods/services from the prior exporting nations who then go into recession themselves
- economies stall and unemployment rises.
what do Iverson and Soskice argue? About the origins of the financial crisis
- it was made possible by trade imbalances in the 10-15 years prior to the crisis
- without imbalances (capital flows) nations would have lost and deficit countries would have gained through real exchange rate adjustments (Less demand for their exports = cheaper purchasing)
- at the same time cross national capital flows fuelled speculative activities in nations without strong financial regulations to increased systemic risk
- The US or UK may well have experienced a financial crisis in the absence of global trade imbalances but the crisis and its repercussions for the global economy would have been far less severe
- global trade imbalances spread the problem
