US ECONOMY
The US economy has been hit hard by the financial crisis, both in the financial sector and in the real sector. Frontline has an excellent video on the origins of the crisis, aired on February 17, 2009: http://www.pbs.org/wgbh/pages/frontline/meltdown/view/.
Federal Reserve's response to crisis, Ben Bernanke, January 2009: http://www.federalreserve.gov/newsevents/speech/bernanke20090113a.htm. The new fiscal stimulus package was signed into law on February 17, 2009. See page on Fiscal Stimulus Package, or to read the text go to: http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=111_cong_bills&docid=f:h1enr.pdf.
Job losses have occurred in both the financial and real sectors, with jobs lost in manufacturing and in professional and business services. Increasing unemployment put pressure on the US government to implement a fiscal stimulus package that would create jobs and assist those who have lost jobs: http://features.csmonitor.com/economyrebuild/2009/02/06/us-unemployment-up-%E2%80%93-and-spreading/, http://www.bls.gov/, http://www.nytimes.com/2009/01/10/business/economy/10jobs.html?_r=1&hp. Modelling recessions--worst downturns: http://norris.blogs.nytimes.com/2009/03/06/the-job-plunge-continues/. Continuing layoffs: http://www.washingtonpost.com/wp-dyn/content/article/2010/01/08/AR2010010800453.html.
Source: US Bureau of Economic Analysis
As home prices continue to fall, mortgage activity is experiencing volatility, plunging and surging in turn: http://www.ft.com/cms/s/0/66961434-d05b-11dd-ae00-000077b07658,dwp_uuid=ffa475a0-f3ff-11dc-aaad-0000779fd2ac.html/, http://money.cnn.com/2009/01/28/real_estate/mortgage_applications.reut/index.htm. Home sales up in July 2009: http://www.nytimes.com/2009/08/27/business/economy/27econ.html?_r=1&hp. The financial sector is continuing to experience losses in August 2009 as it struggles to recover from the crisis: http://www.nytimes.com/2009/08/28/business/28fdic.html?hp.
THE AMERICAN RECOVERY AND REINVESTMENT ACT OF 2009 The $787 billion fiscal stimulus bill was signed into law on February 17, 2009. The website, www.recovery.gov, will allow people to track where the money is being spent. The following are areas with some of the most significant outlays (http://www.cfr.org/publication/18348/): The fiscal stimulus package will represent the first true test of Keynes' theory: http://www.npr.org/templates/story/story.php?storyId=100018973&ft=1&f=94427042. Text of the stimulus package: http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=111_cong_bills&docid=f:h1enr.pdf. Economists on what's missing from the stimulus plan: http://roomfordebate.blogs.nytimes.com/2009/01/28/whats-missing-in-the-stimulus-plan/?hp. Post-Plan Debate: Federal Reserve Bank of San Francisco, Are Fiscal Stimulus Funds Going to the 'Right' States? http://www.frbsf.org/publications/economics/letter/2009/el2009-14.html. Paul Krugman, September 2009, The True Cost of Fiscal Stimulus, http://krugman.blogs.nytimes.com/2009/09/29/the-true-fiscal-cost-of-stimulus/. The US package was fiscal stimulus in a liquidity trap, in which monetary policy does not work, and this will have the effect of crowding in investment.
Research on the Effectiveness of the Fiscal Stimulus Package:
Ajit Zacharias, Levy Institute, on Obama’s Job Stimulus Creation Program: http://www.levy.org/pubs/conf_june09/conf_june09_files/presentations/Session6a_Zacharias.pdf
2000s were “lost” decade in terms of output and employment growth in the US. Striking is the exceptional distress in the labor market (number of weeks looking for job, long-term unemployed as a percentage of total unemployed, income growth)
Fiscal stimulus for employment estimates, 2009-11 comprises about 67% of the stimulus package. Tax cuts comprise around 55% of this percentage.
Use input-output method to estimate job creation, assumes that government is both producer and consumer, combination of medium and high GDP multiplier
Government medium scenario: around 6.1 million jobs, in line with CEA estimates
Results show that 73% of those who lost jobs were men, while stimulus package will give men 60% of jobs. Therefore this favors women, nonwhites, and more educated. Comparing the stimulus package to status of workforce in Dec 2007, the stimulus package is not favoring women.
ARRA appears to be slightly pro-poor in terms of distribution of income. Subgroup disparities do not change, therefore inequality not really reduced
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EUROPE. Resources on the effects of the financial crisis in Western Europe as of May 2009, from the Council on Foreign Relations: http://www.cfr.org/publication/19525/issue_guide.html.
The credit crisis has hit Europe hard. A credit crunch began in England earlier in 2008, as housing prices began to drop. The FTSE declined and home sales fell to their lowest in 30 years. Britain's biggest mortgage lender HBOS was merged into Lloyds TSB. The crisis hit the rest of Europe strongly at the end of September 2008, when Fortis was bailed out. Dexia, Hypo Real Estate, and other banks followed in its footsteps. For a timeline of the credit crisis in the US and Europe, see http://news.bbc.co.uk/2/hi/business/7521250.stm. Map of government interventions: http://www.ft.com/cms/s/54f2b80e-9947-11dd-9d48-000077b07658,dwp_uuid=ffa475a0-f3ff-11dc-aaad-0000779fd2ac,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F54f2b80e-9947-11dd-9d48-000077b07658%2Cdwp_uuid%3Dffa475a0-f3ff-11dc-aaad-0000779fd2ac.html&_i_referer=http%3A%2F%2Fwww.ft.com%2Findepth%2Fusbankearnings. European leaders met on October 5, 2008 and decided to rewrite accounting rules to limit bank write-offs, to allow more government financial intervention in banks if necessary, and to lobby the European Investment Bank to make $21.2 billion available to small and medium-sized businesses. Nelson D. Schwartz, European Leaders Vow to Fight Financial Crisis: http://www.nytimes.com/2008/10/05/business/worldbusiness/05euro.html. Jeffrey White, Europe's Financial Crisis is Spreading Eastward: http://www.csmonitor.com/2008/1028/p01s02-wogn.html. Hungary, Iceland and Ukraine will receive bailout packages from the IMF as the countries experience capital flight and rapidly depreciating currencies. The financial crisis is now a full-fledged currency crisis. On December 12, the EU agreed on a $264 stimulus plan that incorporates national plans already announced: ttp://www.reuters.com/article/newsOne/idUSTRE4B70ME20081212. Eurozone orders decline: http://news.xinhuanet.com/english/2008-12/22/content_10544720.htm.
FRANCE. On October 3, 2008, the French premier Francois Fillon stated that the global economy and that of France was “on the edge of the abyss” (Gow). The weak economy has led to strikes and protests throughout the country. Similarly to in the U.S., France’s government has introduced massive bail-out plans for their banks and industries. Because this bail-out plan does not include consumers, strikers and protesters have demanded a higher minimum wage and job protection. As of October 2008, official data predicted that the French economy would continue to struggle through the third and fourth quarters. Instead, to the surprise of the government, France experienced a .14 growth. The French President, Nicolas Sarkozy, plans to further alleviate the financial crisis by holding a conference for the major world leaders. As the president of the EU, he wants to unify policy dealing with regulation and “control of financial markets,” as he put it.
http://www.neurope.eu/articles/89942.php
http://www.guardian.co.uk/business/2008/oct/03/globalrecession.france
http://www.abc.net.au/news/stories/2008/11/14/2420489.htm
GERMANY. Germany, along with the rest of the world, is deeply embedded in the global financial crisis. With the same amount of exports annually as the United States, constituting about 45 percent of Germany’s overall GDP, the country’s economy has experienced a significant downturn, with exports down 7.3 percent. Accordingly, with German banks being the main investors in these industries since the unification of Germany 1871, the German national banks have taken a hard hit. With high exports in the automotive and heavy machinery industries, Germany recently announced they would be giving big loans to their national car industries. However, even with measures to prevent further devastation, current predictions suggest that the economy could shrink another 4 to 7 percent by the end of the year. Stocks began to take a dramatic plunge following the proposed 700 billion dollar bail out of last year. Currently, Germany’s highest profile causality of the recession has been Hypo Real Estate. The original plan to save Hypo, back in October, was a complete failure. The German banks, that had originally agreed to put up money for the company, backed out at the last minute. Along with the failure of Hypo Real Estate, the second-largest bank in Germany, Commerzbank, also began to feel the crisis starting earlier this year. It was at this point that the German government injected 13.7 billion dollars into bailing out the bank. Obviously, Germany along with many other European nations is attached to the US subprime mortgage securities, but to Germany’s benefit, it was not involved in the housing boom or real estate crisis, as were other European countries. Yet, even while most all the countries of Europe are experiencing similar economic disaster, German Chancellor Angela Merke suggested last month that the EU deal with the disaster on a country-by-country basis. While the German banking system is currently filled with toxic assets, and the budget deficit is predicted to rise by 3% and the GDP to contract by -2.3%, the German government is unsure of when an upturn will occur. As for combating the crisis, bailouts have been proposed and approved for several businesses, but an end is still not in sight to the financial economic disaster. News Article Links: http://www.businessweek.com/globalbiz/content/oct2008/gb20081015_123628.htm, http://www.time.com/time/business/article/0,8599,1890418,00.html
GREECE. Greece is in a severe debt crisis, and set to be bailed out by the Euro zone: http://www.cnn.com/2010/BUSINESS/02/10/greek.debt.qanda/index.html.
HUNGARY. The first EU member to receive IMF aid, Hungary will receive a $25.1 billion loan package from the IMF to help its credit markets cope with a sudden reversal in capital inflows. Telegraph, Financial Crisis: IMF Agrees to $25.1 Billion Rescue Deal for Hungary: http://www.telegraph.co.uk/finance/financetopics/financialcrisis/3276501/Financial-crisis-IMF-agrees-to-25.1bn-rescue-deal-for-Hungary.html.
IRELAND. Ireland recently fell victim to a bursting of their housing bubble which led to banks losing money as housing prices fell 13% from their peak. Being a member of the EMU Ireland was unable to cut interest rates to lessen the fall. Because of that Ireland became the first eurozone nation to be in an official recession with unemployment rising above 6.1%. Ireland should have little problems dealing with it though due to their low national debt. The property market is the central worry. "If it all goes terrible wrong in the property market, there could be significant losses for the treasury given the size of the Irish banking system.” The country plans to give the banks a big bailout to secure the stability of the banking system and make sure that people can put money in banks with confidence. The guarantee for the bailout is about 500 billion Euros which greatly outweighs Irelands GDP which lies at around 119 Billion Euros making the bailout over 200% more valuable than the national GDP. This is made easier by the low national deficit which is only 25% of the GDP. All of this is coupled with the recent drop in the euro which is back to around $1.40 against the dollar, much less than it has been in recent years. Ireland plans to rescue The Allied Irish Bank, The Bank of Ireland, Anglo Irish Bank, Irish Life and Permanent, and Irish Nationwide which have all seen severe slides during the global crisis. Instead of bailing out a particular bank the government just ensured that each bank can lend with confidence. http://www.telegraph.co.uk/finance/financetopics/financialcrisis/3111122/Financial-crisis-Irelands-banks-are-rescued.html
http://www.france24.com/en/20080930-ireland-guarantee-protect-banks-financial-crisis-celtic-tiger
ITALY. In order to combat such an economic downturn the Italian cabinet passed a financial crisis package, which “includes a 20 billion euro (15.8 billion pound) fund to help banks” (“Italy cabinet passes financial crisis package”) in the beginning of October last year. Prime Minister Silvio Berlusconi hoped that this package would keep Italian banks from failing and also insure that people’s savings were secure (“Italy cabinet passes financial crisis package”). The country’s leaders were criticized for “producing stimulus packages a fraction of the size of those of other large countries”, but it seems to have been beneficial to the country, seeing as the “European Commission expects Italy's economy to contract by 2% this year, far less than Britain, Ireland and Germany and broadly in line with the average performance of the euro zone for the first time in years” (Italy is hardly noticing the financial crisis - Feb. 18, 2009).
http://money.cnn.com/2009/02/18/news/international/italy_economy.reut/index.htm
http://uk.reuters.com/article/topNews/idUKTRE497AD720081008
SPAIN. As a country that was probably hit harder than most as a direct result of subprime lending, Spain has taken measures to protect its banks and employment levels. Its once thriving construction industry that boomed until the recession beginning in 2007 partly as a result of an influx of immigrants (find a source) is now in crisis. In response, the Spanish prime minister Zapatero has decided to reinforce Spain’s banks with a federal fund of 30-50 billion euros for purchasing assets from Spain’s banks in order to relieve them of some of the financial burden accumulated through the struggling housing market. This was announced in October 2008 (NY Times). More recently, the head of the Spanish National Bank has spoken out against a plan to reform the Spanish labor market because he does not think it will be effective enough. http://www.nytimes.com/2008/10/08/business/worldbusiness/08euro.html
http://www.elpais.com/articulo/economia/Fernandez/Ordonez/critica/proteccion/laboral/funciona/aumenta/paro/elpepueco/20090211elpepueco_8/Tes
SWEDEN. In Sweden currently, the problems facing the international financial system is much bigger in both scale and structure than the 1992 crisis. The Swedish government had to take over the worst two banks. That implied that the government was on both sides – the bank and the bad bank – in estimating the value of the failed assets. Swedish banks have taken advantage of the government's financial stability measures to boost their interest income rather than cut corporate borrowing costs. A Financial Supervisory Authority report said the government's measures, which include state guarantees for up to 1.5 trillion crowns ($166 billion) of new bank borrowing, boosted net interest income at the banks in the fourth quarter. Unemployment is expected to grow to about 7 percent, and growth will slow to about zero in 2009. http://www.thelocal.se/17666/20090218/
http://www.nytimes.com/2008/09/23/business/worldbusiness/23krona.html
http://www.reuters.com/article/rbssFinancialServicesAndRealEstateNews/idUSLR63415820090227
http://www.sweden.se/templates/cs/Article____20455.aspx
UKRAINE. The Ukraine will also receive IMF aid in a stand-by agreement, of $16.4 billion: http://www.imf.org/external/np/sec/pr/2008/pr08271.htm. Iceland received a $4.6 billion bailout from the IMF: http://www.bloomberg.com/apps/news?pid=20601085&refer=Europe&sid=azk4nyjLps5k.
UNITED KINGDOM. The London School of Economics has held many lectures of the effects of the crisis both in the UK and in global markets. Lectures are available on mp3 at: http://www.lse.ac.uk/resources/podcasts/publicLecturesAndEvents.htm. The UK economy has experienced mixed reports on bank profits at the beginning of 2009: http://news.bbc.co.uk/2/hi/business/8184771.stm.
