The United States, China and the New World Order
When reviewed over five years later, as of mid-2013, there is little doubt that the financial crisis and downturn of 2007–09 has left much of the world economy in a profoundly different position from before, when global economic growth appeared set on a continuously expanding course. Now, the eurozone is entering its second recession since 2008, Japan remains in a depressed economic state, the United States economy is expanding, but more slowly than expected, while the emerging market economies are once again slowing down. How can this situation be explained? What was it about the financial crisis that so interrupted global finance and created such enduring economic consequences? The simplest answer, that many economies are in the midst of a balance sheet recession, when balance sheets must be repaired and the debt overhang reduced before ‘usual business’ can begin again, merely begs the question of how so much of the world got into this position in the first place. Conventional explanations of the global financial crisis emphasize three factors. First, there was the vast expansion of (gross and net) international financial flows and the associated payments imbalances, due either to a global savings glut or to monetary policy in the final years of the Greenspan Fed, which created a hothouse atmosphere in which excessive lending on real estate flourished.
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