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Crash and BeyondCauses and Consequences of the Global Financial Crisis$
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Andrew Farlow

Print publication date: 2013

Print ISBN-13: 9780199578016

Published to Oxford Scholarship Online: April 2015

DOI: 10.1093/acprof:osobl/9780199578016.001.0001

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Global Imbalances and the Rise of Debt

Global Imbalances and the Rise of Debt

Chapter:
(p.2) (p.3) 1 Global Imbalances and the Rise of Debt
Source:
Crash and Beyond
Author(s):

Andrew Farlow

Publisher:
Oxford University Press
DOI:10.1093/acprof:osobl/9780199578016.003.0001

This chapter examines how global economic imbalances and the accumulation of debt contributed to the financial crisis of 2008. It begins by considering the ‘Great Moderation’, a phrase coined by Ben Bernanke in 2004 to describe the ‘remarkable decline’ of inflation and output volatility in the United States and other developed economies (with the exception of Japan at the time) over the previous two decades. It then turns to a discussion of global economic imbalances that reflected forces at work over very long stretches of time, including the shift of global production towards countries with much lower labour costs, with an ever-growing share of income going to the owners of capital. It also discusses the relationship between China and the United States and the role of very low, real, long-term interest rates in the financial crash, along with the growth of debt and the underpricing of risk.

Keywords:   global economic imbalances, debt, financial crisis, Great Moderation, inflation, United States, capital, China, interest rates, risk

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