Saturday, February 23, 2013

From the Great Moderation to the Great Financial Panic

On the day, Britain loses its AAA credit rating, research shows a link between austerity and rising debt to GDP ratio in the Eurozone.


Source: Vox

The Eurozone 'Panic driven austerity' was a tragic waste. Austerity has done a lot of damage, but it was unnecessary and only really occurred because of rising bond yields due to having no Central Bank willing to shore up confidence. With an independent Central Bank, the UK didn't have same problem with bond yields have fallen to record levels, so it is a shame, we pursued austerity over economic growth.

Other popular blog posts

  • Keynesian Economics - How much does the current crisis vindicate basic Keynesian economics?
  • What happens when quantitative easing ends? We will see the Central Bank start to sell it's mountain of government securities. This will push up interest rates and possibly reduce money supply. But hopefully, Q.E. will only be reversed when the economy is growing strongly.
  • The Great Moderation - Those were the days! the longest period of economic expansion on record, low inflation, low interest rates,  rising house prices (just don't mention the sub-prime mortgages on private debt)
  • Iceland's recovery - some proof that devaluation and defaulting on bank debts can actually be quite good.
  • Financial instability hypothesis - why the great moderation helped create the great credit crisis and financial panic of 2008.

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