Edited by Joseph E. Harrington Jr and Yannis Katsoulacos
Chapter 18: Fixing Finance: Are We There Yet?
18. Fixing finance: are we there yet? Thomas F. Huertas1 Crises are costly. The crisis that started in August 2007 has already cost society over six trillion euros in lost output, and it will cost trillions more. Output in most industrialized countries remains significantly below the level that it would have reached had the pre-crisis trend rate of growth continued. The crisis also poses a threat to the public finances in the USA, the UK and, most significantly, in the Eurozone, and failure to address these problems could cause the world economy to plunge once again into turmoil. It will be many years, if ever, before the economy again reaches the pre-crisis trend line. According to a World Bank forecast global gross domestic product (GDP) in 2015 will still not have caught up to the level of GDP that it would have reached had the pre-crisis trend rate of growth continued (Figure 18.1). The present value of that future output shortfall is 8.5 trillion euros; so the total cost of the crisis is likely to be on the order of 15 trillion euros or over 30 per cent of the level of pre-crisis global GDP. These losses will magnify if the recovery stalls or a double dip occurs (Huertas, 2011a, pp. 1–2). That could well occur if governments cannot bring sovereign debt back under control. Accordingly, there is some possibility that we may trillions Global GDP Output gap 2006 2007 2008 2009 2010 2011 2012 actual 2013 2014 2015...
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