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Keynes and Recession. Dr Maurice Mullard Lecture 5. Financial Crisis . Global Economy experience 122 financial crisis since 1945 UK Experienced 8 recessions USA 7 since 1950 Definition of recession fall in GDP for two quarters

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keynes and recession

Keynes and Recession

Dr Maurice Mullard

Lecture 5

financial crisis
Financial Crisis
  • Global Economy experience 122 financial crisis since 1945
  • UK Experienced 8 recessions USA 7 since 1950
  • Definition of recession fall in GDP for two quarters
  • Most recessions start in financial sector banking crisis or housing bubble
  • Recovery takes about 5 years see work Reinhart and Rogoff also IMF website
explaining present recession
Explaining Present Recession
  • Thesis of a Savings Glut too much global savings not enough investment opportunities
  • Savings mainly China and Emerging Economies
  • Buying US Treasury kept interest rates low
  • Assumptions about house prices
  • Repairing lost savings
austerity debate
Austerity Debate
  • Public Sector deficits are unsustainable
  • Treasury bonds lower interest rates
  • Liquid markets saying there is no problem in funding deficits
  • Is Reducing the deficit an issue of ideology or economic necessity
keynes on the paradox of thrift
Keynes on the paradox of thrift
  • Savings and Investment
  • Savings higher than investment
  • Saving as individual issue and the collective decision
  • Declining aggregate demand
  • Stimulus packages
  • Infrastructure expenditure as improving capital
capital expenditure
Capital Expenditure
  • Example of China stimulus plan improving communications
  • US stimulus tax reductions
  • UK expenditure on capital projects
  • Recession is this a
  • V
  • L
  • W
  • U
v type recession
V Type Recession
  • Temporary blip soon return to normal path of growth
  • Structure of Economy is sound
  • Unemployment is voluntary
  • Prick the bubble of housing
  • Problem is now recession is in third year
  • UK forecast growth 0.5 per cent
  • Destruction of GDP equivalent to 5 per cent
l shaped recession
L Shaped Recession
  • We shall stay in recession for a long period
  • Problem of structure
  • Too much reliance on financial sector
  • Need to find new growth sectors
  • Exports to china and India
  • Global imbalances
  • EU in recession as well as USA
w shaped recession
W Shaped recession
  • Forecast that we had recession in 2007 and we shall have a new recession in 2011
  • Hurricane still to come
  • Falling house Prices
  • Decline in manufacturing
  • Reducing public expenditure
  • Interest rates already at zero
  • Where is growth going to come from