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GFC 10 years on - More debt money printing has covered up a debt crisis

September 13, 2018
The 15th September will mark ten years since Lehman Brothers filed for Chapter 11 bankruptcy protection, a cataclysmic event which reverberated throughout financial markets and led to the “Global Financial Crisis“. This laid the foundations for an extraordinary period for central bank activity and therefore financial markets. It’s still not clear if lessons from the GFC have been learned. In our 2017 Long Term Study “The Next Financial Crisis” we argued that the global financial system post Bretton Woods remains vulnerable to financial crises, and their frequency has been higher in this period than across all prior financial history. The GFC was clearly an extreme case and likely a once-in-a-lifetime event. However, in solving this crisis we have added more debt to an already heavily indebted system and our central banks have imposed a decade of extraordinary measures, from which most still struggle to withdraw. [more]

88 (85-88)
December 16, 2013
Region:
85
The approval of the coalition negotiations by the SPD’s membership has finally paved the way for a grand coalition. In our view, the agreement that is to be implemented over the coming years will take Germany in the wrong direction and will reduce trend growth in two broad ways: through the partial reversal of the successful Hartz reforms, as well as through increasing the fiscal sustainability gap through pension-system give-aways. Instead of making Germany a more competitive location for business and preparing its society for the demographic challenges ahead, the coalition is on course to implement policies that will be seen as errors in the years ahead. Increased federal spending on education, research and development is not accompanied by cuts in less useful policy interventions. European policy remains caught in a catch-22 between a tangled mass of over-complex regulation and the lack of willingness – not only in Germany – to rapidly pursue a political union. [more]
December 12, 2013
Region:
86
International criticism of Germany’s current account surpluses has reached new heights. The persistent surpluses are often seen as worsening, if not causing, the European crisis by impairing the peripherals’ capacity to export. Still, even taken individually, most arguments put forward do not hold water. As there is little evidence that Germany is manipulating relevant parameters, one should accept that the surpluses are the result of individual decisions of largely private agents in Germany and abroad. Politicians and commentators may be unhappy with the result, but they should not blame Germany. Rather, they ought to insist that the peripheral countries continue to improve their own competitiveness. Higher minimum wages and rising social security contributions will be a burden for the domestic economy in the medium term and hence weigh on import growth. [more]
November 26, 2013
Region:
87
The expansion of renewables, while a worthy long-term goal, is presently jeopardising German competitiveness. To prevent this, the Energiewende – i.e. energy turnaround or transformation – must be implemented more efficiently. We welcome government plans to impose a minimum levy on new systems for captive generation. To ensure the levy doesn’t also rise unsustainably, the subsidies should gradually be phased into market-based price and volume mechanisms. The government should tighten exceptions to the levy, while continuing to shield the energy-intensive companies most vulnerable to international competition. [more]
November 4, 2013
Region:
88
The current negotiations between CDU/CSU and SPD towards forming a government point to the implementation, for the first time, of a country-wide minimum wage of EUR 8.50 per hour. Empirical evidence suggests that the effect of a minimum wage is particularly toxic when it is brought to a level that is close to the median wage. This would mean higher wages for about 6 m workers (17% of all workers). A minimum wage will certainly impair the employment chances of groups which already have distinctively higher unemployment rates. If society or politicians do not want to accept the distributional effects of the market, this should be dealt with via taxation and transfers and not by interfering with wage setting. [more]
7.6.3