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All Fall Down

Debt, Deregulation and Financial Crises

Jane D’Arista

All Fall Down traces the ways in which changes in financial structure and regulation eroded monetary control and led to historically high levels of debt relative to GDP in both developed and emerging economies. Rising stocks of debt drove the global financial system into crisis in 2008 when households, businesses, financial institutions and the public sector in some countries strained to generate sufficient income for debt service. The stagnation and fall in asset prices that followed began the process of unwinding that led to a run on the financial sector by the financial sector.
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Chapter 12: Dollar hegemony

Jane D’Arista

Extract

A dominant role for the dollar in the global economy was inevitable given US economic and financial strength after the Second World War. But the delinking of the dollar from gold in 1971 eliminated constraints on the increase in the use and amount of the key currency and allowed its value to be determined by market forces. Acceptance of a national currency for international payments required other countries to rely on export-led growth to earn that currency and required the US to run trade deficits financed by capital inflows. American growth came to depend on foreign savings that expanded credit and increased debt at home and to residents and governments of other countries. The continuation of this system depends on confidence in America’s ability to maintain the level of growth needed to service its debts to the rest of the world.

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