An Assessment of the Global Impact of the Financial Crisis

About the Author PHILIP ARESTIS Cambridge Centre for Economics and Public Policy, Department of Land Economy, University of Cambridge, UK; Professor of Economics, Department of Applied Economics V, Universidad del País Vasco, Spain; Distinguished Adjunct Professor of Economics, Department of Economics, University of Utah, US; Senior Scholar, Levy Economics Institute, New York, US; Visiting Professor, Leeds Business School, University of Leeds, UK; Professorial Research Associate, Department of Finance and Management Studies, School of Oriental and African Studies (SOAS), University of London, UK; and current holder of the British Hispanic Foundation 'Queen Victoria Eugenia' British Hispanic Chair of Doctoral Studies. He is Chief Academic Adviser to the UK Government Economic Service (GES) on Professional Developments in Economics. He has published as sole author or editor, as well as co-author and co-editor, a number of books, contributed in the form of invited chapters to numerous books, produced research reports for research institutes, and has published widely in academic journals. ROGÉRIO SOBREIRA Associate Professor of Economics and Finance, Brazilian School of Public and Business Administration at Getulio Vargas Foundation and CNPq Researcher. He has published several articles in academic journals and invited chapters mainly on banking regulation, banking firm, investment financing and public debt management. He co-edited five books, all in Portuguese: \*Financial and Banking Regulation\* (Atlas), \*Development and the Building of a Nation – Economic Policy\* (FGV), \*Development and the Building of a Nation – Public Policy\* (FGV), \*Fiscal Adjustment: The Case of Selected Countries\* (FGV) and \*Monetary Policy, Central Banks and Inflation Targeting\* (FGV). He is member of the Brazilian Keynesian Association. JOSÉ LUIS OREIRO Associate Professor of Economics at University of Brasilia (UnB), Level I Researcher at National Scientific Council (CNPq/Brazil), Director of the Brazilian Keynesian Association (AKB) and Member of the Editorial Board of Brazilian Journal of Political Economy (REP). He has published more than 60 articles in academic journals in Brazil and other countries, 3 books as editor and contributed in the form of invited chapters to many other books. According to REPEC, he belongs to top 10% of academic economists in Brazil. The 2008 financial crisis hit the heart of capitalism, but the effects were much weaker in the 'periphery' of the capitalist system than in its center. This book provides a solution to this paradox. The analysis presented here shows that current account surpluses and accumulation of foreign reserves are important for developing countries because they allow them to conduct anti-cyclical policies in the face of a financial crisis in developed countries. Stabilization of output is important for robust growth in the long term due to its effects over capitalist animal spirits. Developed countries should never pursue a growth strategy based merely on accumulation of 'foreign savings'. This book presents an extensive and in-depth analysis of the crisis as it influenced both developed and developing countries. It is shown that the impact of this crisis is far from being homogenous across the developed and developing world. The most intriguing aspect of it is the fact that it affected less those economies responsible for the generation of the 'global savings glut', and more those economies that are more dependent on foreign capital inflows. In this aspect, the book also addresses the question of why this crisis has been rather limited in magnitude and of such relatively short duration. It is also shown that financial liberalizationalone cannot fully explain the crisis. It is necessary to take a good look on the size of the financial sector all over the world and the redistributive impact related to it. Thus, one of the main lessons that can be learned by this volume is a profound need to implement policies that can guarantee financial stability. This book is essential reading for all interested in economic growth, macroeconomics, and development economics The 2008 financial crisis poses three fundamental questions for economists and policy makers; understanding the origins of the crisis, understanding the consequences of this crisis for the world economy, and finally understanding why the 2008 financial crisis is not as serious as the 1929 crisis. The prevailing view is that the 2008 financial crisis was solely the result of inadequate financial regulation together with a very loose monetary policy conducted by central banks, especially the Fed. It is believed that this crisis is a temporary detour in the normal course of the events, so that in the near future capitalist economies will resume the high growth path observed before the crisis. In terms of the third question, there is a widespread view that the fundamental reason that explains the avoidance of the harmful experiences of 1929 was the fiscal and monetary policy expansions in developed countries. No important role is assigned to developing countries in terms of the effects of the financial crisis. This book challenges the prevailing orthodoxy surrounding the origins and the consequences of the 2008 financial crisis. The book demonstrates that measures in addition to a profound change in the financial regulation are required if a new financial crisis is to be avoided in the future, measures include: a change in the conduct of economic policy; a reform of the national and international monetary systems; and a radical change in the pattern of income distribution. This book is essential reading for all interested in macroeconomics, monetary policy, development economics and the global impact of the financial crisis Front Matter....Pages i-xvi Introduction....Pages 1-11 Current Crisis in the US and Economic Policy Implications....Pages 12-35 The Global Economic and Financial Crisis: Which Way Forward?....Pages 36-59 Crises and the Bretton Woods Institutions and the Crises of the Bretton Woods Institutions....Pages 60-83 Crisis in the Euro Zone....Pages 84-107 The Impact of the Current Crisis on Emerging Market and Developing Countries....Pages 108-134 The Crisis in Western and Eastern EU: Does the Policy Reaction Address its Origins?....Pages 135-158 The Impact of the Subprime Financial Crisis on the Transition and Central Asian Economies: Causes and Consequences....Pages 159-181 The World Financial Crisis and the Implications for China....Pages 182-208 The 2008 Financial Crisis and Banking Regulation in Brazil....Pages 209-235 Exchange-Rate Derivatives, Financial Fragility and Monetary Policy in Brazil during the World Financial Crisis....Pages 236-260 Back Matter....Pages 261-270 This topical volume analyzes the impact of the 2008 financial crisis. It considers the origins and explanations of the current crisis, examines the regulatory implications and, with specific focus on developing countries, it provides a strategy for economic growth that can guarantee financial stability in the future.