Systemic, Conjunctural or Policy Created?
New Directions in Modern Economics series
Edited by Turan Subasat
Chapter 10: The policy-based and conjunctural causes of the 2008 crisis
This chapter focuses exclusively on the policy-based and conjunctural causes of the 2008 crisis and argues that policy-based factors are in essence also systemic as policy-making is deeply enrooted in class relations. It argues that the crisis was caused primarily by the simultaneous deregulation of trade and financial sectors which created large and unsustainable balance-of-payments problems in a number of major developed countries which were also aggregated by a number of conjunctural factors: the accumulation of large foreign reserves in a number of developing countries after their financial crisis since the 1980s, the rapid increase in the crude oil prices between 2002 and 2008, China’s competitive exchange rate policy and its accession into the World Trade Organization in 2001, and the introduction of the euro in 1999, all have contributed to the rapid increase in global liquidity and large current account problems in a number of developed countries. The rapidly increased foreign debt and current account deficits created ‘overfinancialization’ which was evident from the emerging bubble economies that inevitably collapsed.
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