Sachs pins blame on Greenspan
The easy money policies of the early years of this decade are one of the root causes of the credit crunch according to an article by Jeffrey Sachs in today’s Guardian. “Much blame for the current economic turmoil can be placed squarely at the door of Alan Greenspan and the Fed…Monetary expansion generally makes it easier to borrow, and lowers the costs of doing so, throughout the economy. It also tends to weaken the currency and increase inflation. All of this began to happen in the US.”
The rest of the article is here
Revision Mind Map: External Economic Shocks
This is an important topic at A2 and you can also bring in useful ideas in AS macro papers too. A revision mind map is attached together with the original mind map for colleagues who might want to amend and develop further.
Notes to students:
All economies that are partof the global trading system are exposed to one or more exogenous shocks
They can be either demand or supply side
They can be positive or negative in terms of their impact on prices, output, jobs and living standards
It is important to be able to use AD-AS analysis to show some of the effects of shocks
Evaluation is key in these sorts of questions - how large is the shock? is it temporary or longer-lasting?
Consider how policy-makers can respond to shocks and understand the importance of economic flexibility in dealing with the aftermath
External_Economic_Shocks.pdf
Global_External_Economic_Shocks.mmap
Credit Crunch Mind Map
I have updated my mind map on the credit crunch and now made it available to download as a mmap.file. If you have Mind Jet Mind Manager, please feel free to download it and amend if you find it useful.
The_Credit_Crunch.mmap
Fed opts to leave a little powder left
It is a sign of the times when a decision to cut (slash) official short term interest rates by 0,75% (taking US rates to 2.25%) comes in below market expectations! The US Fed Reserve has cut the cost of borrowing in a fresh bid to limit the downside risks for the real economy as financial turbulence threatens to dent a huge hole in prospects for the US economy in the coming months. Loads of comment available on this one from virtually every commentator. Evan Davis, the former Economics editor of the BBC was on good form on TV this morning - explaining that cuts in interest rates from the central banks is not really where the problem lies for most consumers. It is the interest rate charged on the lending and borrowing that the banks do between each other which then feeds through into the market for mortgage and other retail loans.
One of the keys to coming out of this crisis will be for banks to recapitalise and improve their own block of funding before they start lending out again. In short, the banks need to attract fresh injections of capital - perhaps from encouraging more of us to save and also from external sources such as the petro-dollars being held by the sovereign wealth funds. Confidence in the different pieces of the financial system is ebbing away - stabilising the markets is the immediate issue and the problem.
Data charts on US and UK interest rates
US_Rate_Cut_March_2008.pdf
UK_Interest_Rates.pdf
Suggested links on the US rate cut
Credit crunch (pdf) slides
The credit crunch (or should it now be called a credit crisis?) will be dominating the headlines for some time to come. I was discussing aspects of it in my macro lesson this morning, we looked at the Bear Stearns share price; the sharp turning point in the US housing market, the need for a rebalancing of the US economy through higher domestic savings and the trends in the dollar-euro exchange rate and equity prices.
read more...»Mind Map: Credit Crunch
Our A2 macro group mind-mapped the Credit Crunch in a lesson on Friday, a text summary appears below and the original map is also available as a pdf file.
read more...»Bear Stearns - The Tip of an Iceberg?
A couple of days ago one of my colleagues on the teaching staff came up to me and said that he was surprised to find so few people as worried as he was about the financial crises known as the credit crunch. He was spot on. Barely a day goes by without the Financial Times or the Wall Street Journal headlining news of the latest hedge fund collapse, bad debt write-off, profit warning from the real economy or rumours of a deeper and much broader contagion of disease ridden debt floating around the financial system. I was hinting to my economics class last week that things are likely to get worse - perhaps much worse - than the markets are predicting. Financial bubbles do not, as a general rule, deflate gently. Bubbles burst, and sometimes with frightening rapidity and force once euphoria has given way to doubt and panic. The massive injections of liquidity by the main central banks and the deep cuts in nominal interest rates are testimony to the seriousness of the credit crunch. They may not be enough.
read more...»Credit Crunch in 3:07
I teach a General Studies course on Friday mornings and will be looking at the credit crunch and the link between financial and economic crises tomorrow.
read more...»Recession Watch: American Idle
Economists in the United States pay a lot of attention to the monthly payroll numbers and the latest set of figures are being taken as a sign that recession is more or less a done deal in the USA.
read more...»
