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THE GLOBAL FINANCIAL CRISIS. Dr Tony Stokes Senior Lecturer in Economics AUSTRALIAN CATHOLIC UNIVERSITY Strathfield. The Global Financial Crisis. www.nicholsoncartoons.com.au. How did the financial crisis begin?. The financial crisis began in the US in the middle of 2007.

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the global financial crisis

THE GLOBAL FINANCIAL CRISIS

Dr Tony Stokes

Senior Lecturer in Economics

AUSTRALIAN CATHOLIC UNIVERSITY

Strathfield

Dr Tony Stokes - Economics at ACU National

the global financial crisis1

The Global Financial Crisis

www.nicholsoncartoons.com.au

Dr Tony Stokes - Economics at ACU National

how did the financial crisis begin
How did the financial crisis begin?
  • The financial crisis began in the US in the middle of 2007.
  • Since 2006 - 40% of new U.S. mortgages were non-prime mortgages, often with very high loan-to-value ratios and minimal documentation.
  • It looked like until the middle of 2008 that global growth would cushion the damage in the US.
  • The latest stage of the financial crisis started in September 2008, when several important U.S. financial institutions had financial problems with bad debts and a lack of liquidity and closed.

Dr Tony Stokes - Economics at ACU National

how did the financial crisis begin1
How did the financial crisis begin?
  • Lehman Brothers’ decision to file for bankruptcy, in particular, impacted global financial markets, worsened the severe contraction in market liquidity and heightening concerns about risks.
  • This led to a rise in borrowing costs for both financial and nonfinancial firms (see next slide)
  • This also spread to other nations where financial organisations had borrowed from these markets.
  • The probability of debt defaulting in the US has doubled in the last 12 months

Dr Tony Stokes - Economics at ACU National

what are the effects of the global financial crisis
What are the effects of the global financial crisis?

Dr Tony Stokes - Economics at ACU National

what are the effects of the global financial crisis1
What are the effects of the global financial crisis?
  • The global financial crisis has led to falling share markets, and instability in financial and foreign exchange markets
  • This uncertainty has discouraged investment and spending leading to falling economic growth rates and rising unemployment levels.
  • The IMF predicts that the level of World GDP will fall to 3.4% in 2008 and fall further to 0.5% in 2009.
  • Advanced Economies are expected to have -2% growth in 2009.

Dr Tony Stokes - Economics at ACU National

what are the effects of the global financial crisis2
What are the effects of the global financial crisis?

Dr Tony Stokes - Economics at ACU National

what are the effects of the global financial crisis3
What are the effects of the global financial crisis?

Dr Tony Stokes - Economics at ACU National

what are the effects of the global financial crisis4
What are the effects of the global financial crisis?

Dr Tony Stokes - Economics at ACU National

what are the effects of the global financial crisis5
What are the effects of the global financial crisis?

Dr Tony Stokes - Economics at ACU National

what have been the governments response
What have been the governments’ response?
  • Central banks in the advanced economies have taken strong actions to cut policy rates and improve credit provisions.

Dr Tony Stokes - Economics at ACU National

what have been the governments response1
What have been the governments’ response?
  • Many governments have announced fiscal packages to boost their economies.
  • Fiscal stimulus in G-20 countries in 2009 is projected to contribute 1.5 percent of GDP.

Dr Tony Stokes - Economics at ACU National

what have been the governments response2
What have been the governments’ response?

Dr Tony Stokes - Economics at ACU National

when will it all end
When will it all end???

www.nicholsoncartoons.com.au

Dr Tony Stokes - Economics at ACU National

recovery will be slow
Recovery will be slow

www.nicholsoncartoons.com.au

Dr Tony Stokes - Economics at ACU National

when will it all end1
When will it all end???
  • The IMF has predicted that global recovery will be slow.
  • In 2010 global growth is projected to be 3.0%.
  • Advanced economies are expected to grow by only 1.1%.
  • The emerging and developing economies are projected to grow by 5% in 2010 with China leading the way with 8%.
  • These levels are still likely to lead to increased unemployment rates at least until 2011.

Dr Tony Stokes - Economics at ACU National

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