A Comparative History
Chapter 7: The twin financial disasters of the early twenty-first century
On a visit to the London School of Economics in November 2008, Queen Elizabeth II expressed her perplexity over the failure of economists and market participants to predict the recent financial collapse. The Queen, it should be added, was not a disinterested observer. The crash is estimated to have reduced the value of her £100 million investment portfolio by 25 per cent (Pierce 2008). The period beginning in 2007 saw two interrelated financial disasters, both of which had large macroeconomic consequences. Whereas the first of these disasters, commonly known as the Global Financial Crisis (GFC), was largely an Anglo-American affair, the second was based in the Eurozone. The Anglo-American disaster of 2007–09 punished those European financial institutions that had dabbled in the US bubble, destabilized the Eurozone more generally, and sparked a global economic contraction and credit crunch. American and British policy makers were more successful than their Eurozone counterparts at making sense of the situation and finding remedies. Eurozone policy makers were hampered, both intellectually and practically, by their commitment to monetary union, just as their unfortunate predecessors had been by the Gold Standard in the early 1930s. The twin financial disasters of the early twenty-first century prompted numerous comparisons with the early 1930s (Eichengreen 2012; 2015; Eichengreen and Temin 2010; O’Rourke and Taylor 2013; de Bromhead et al. 2013). Furthermore, Ben Bernanke, the Chairman of the Federal Reserve Board between 2006 and 2014, was steeped in the lessons of the 1930s.
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