martin wolf on 'the shifts and the shocks: what we've learned – and still have to learn...
TRANSCRIPT
The Shifts and the ShocksMartin Wolf, Associate Editor & Chief
Economics Commentator, Financial Times
IPPR
1st December 2014
London
2
The Shifts and the Shocks
• What happened: the shifts and shocks?
• What is to be done: the solutions?
1. What happened? The costs
3
IN THE US IT IS NOW LOOKING LIKE A NEW ERA
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
$0
$5,000
$10,000
$15,000
$20,000
$25,000
1950 1956 1962 1968 1974 1980 1986 1992 1998 2004 2010
Dev
iati
on
fro
m t
ren
d (
per
cen
t)
GD
P (
bn
)
US GDP(Actual, trend and deviation from trend)
Gross domestic product 1950-2007 Trend Deviation from trend (per cent)
1. What happened? The costs
OUTPUT IS VASTLY BELOW THE PRE-CRISIS
TREND
4
-16.0%
-14.0%
-12.0%
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
€ 0
€ 500
€ 1,000
€ 1,500
€ 2,000
€ 2,500
€ 3,000
De
via
tio
n f
rom
tre
nd
(p
er
ce
nt)
Qu
art
erl
y G
DP
(b
n)
EUROZONE GDP(Actual, trend and deviation from trend)
Actual 1955-2007 trend Deviation
1. What happened? The costs
OUTPUT IS VASTLY BELOW THE PRE-CRISIS
TREND
5
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010
UK GDP PER HEAD(purchasing power parity, at 1990 Geary Khamis dollars)
Source: Maddison project and the Conference Board
1870-1950 trend 1950-2007 trend GDP per head
1. What happened? Savings glut
6
-2
-1
0
1
2
3
4
5
0.00
50.00
100.00
150.00
200.00
250.00
300.00
350.00
Q11995
Q11997
Q11999
Q12001
Q12003
Q12005
Q12007
Q12009
Q12011
Q12013
Ind
ex-lin
ke
d Y
ield
Real H
ou
se P
rices (
ind
ex n
um
ber)
REAL HOUSE PRICES AND REAL INDEX-LINKED YIELDS
US real (S&P Case Shiller National) UK real Nationwide
Spain real UK 10-year IL gilts
SLIDE INTO DEPRESSION RATES OF INTEREST
1. What happened? Imbalances
7
-3
-2
-1
0
1
2
3
4
1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
GLOBAL IMBALANCES (as per cent of world GDP)
US Oil exporters Germany and Japan
Peripheral Europe China and Emerging Asia Rest of world
Discrepancy
WHERE EXCESS SAVINGS CAME FROM
1. What happened
8
THE ROLE OF GOVERNMENTS
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
FOREIGN CURRENCY RESERVES ($bn)
China Other Asian developing countries
Other developing countries Industrial countries
1. What happened? Debt
9
0.0%
50.0%
100.0%
150.0%
200.0%
250.0%
300.0%
350.0%
US CUMULATIVE PRIVATE SECTOR DEBT OVER GDP
Households Non-financial Business Financial Sectors
THE TRAP OF LEVERAGE
1. What happened? Bank leverage
10
Ratio of risk-weighted to unweighted assets declines in four largest UK
headquartered banks falls, as leverage increases
1. What happened? Cheep money
11
RATES AS LOW AS THEY WILL GO
0
1
2
3
4
5
6
7
8
CENTRAL BANK INTERVENTION RATES (per cent)
Fed BoE Buba/ECB BoJ
1. What happened? More money
12
CENTRAL BANK BALANCE-SHEET EXPANSION
0.00
10.00
20.00
30.00
40.00
50.00
60.00
Q12000
Q12001
Q12002
Q12003
Q12004
Q12005
Q12006
Q12007
Q12008
Q12009
Q12010
Q12011
Q12012
Q12013
Q12014
CENTRAL BANK ASSETS OVER GDP
Federal Reserve BoE BoJ ECB
1. What happened? Low bond yields
13
EUROZONE BECOMES JAPAN
0
1
2
3
4
5
6
10-YEAR BOND YIELDS
Germany UK France US Japan
1. What happened? Eurozone imbalances
14
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
EUROZONE IMBALANCES ON CURRENT ACCOUNT(as per cent of Eurozone GDP)
Germany Other creditors Vulnerable countries
France Others Eurozone
IMBALANCES AND REBALANCING
1. What happened?
15
THE EUROZON LEHMANS
-2
0
2
4
6
8
10
12
14
16
1/1/07 1/1/08 1/1/09 1/1/10 1/1/11 1/1/12 1/1/13 1/1/14
SPREADS ON TEN-YEAR GOVERNMENT BONDS OVER BUNDS (percentage points)
Portugal Ireland Italy Spain LTRO OMT TLTRO
1. What happened? Managed depressions
16
90
92
94
96
98
100
102
104
106
108
110
Q1 2008 Q1 2009 Q1 2010 Q1 2011 Q1 2012 Q1 2013 Q1 2014
GDP AND DEMAND IN THE CRISIS
Eurozone domestic demand Eurozone GDP
US domestic demand US GDP
THE BAD AND THE UGLY
2. What are the solutions? Finance
• “As of July this year, two years after the enactment of
Dodd-Frank, a third of the required rules had been
finalised. Those completed have added a further
8,843 pages to the rulebook. At this rate, once
completed, Dodd-Frank could comprise 30,000
pages of rulemaking. That is roughly a thousand
times larger than its closest legislative cousin, Glass-
Steagall. Dodd-Frank makes Glass-Steagall look like
throat-clearing.” Andrew Haldane and Vasileios
Madouros, Bank of England
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