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Study Cards on financial, usa, reduction

To what was the crisis of the 2007-09 linked?

At one level, the crisis was linked to the inappropriate lending strategies adopted by US banks and mortgage institutions.

At a deeper level, however, the sub-prime problem in the USA, was merely a symptom of the defects and vulnerabilities of the neoliberal capitalism that had taken root in the USA and UK in particular, based on free markets and an inflated and under-regulated financial system. --> need for financial regulation.

At an even deeper level: exposed imperfections. Capitalism can be viewed as inherently unstable and crisis-prone.

In 2010 more economic problems emerged. What were the consequences of the crisis?

- Widespread and unsustainable debt in many developed economies
- paradoxes and pitfalls of deficit reduction
- the possible end of neoliberal globalization
- major redistribution of power in the global economy

What appears to be the solution to high/growing levels of public borrowing?

Debt reduction, brought about by fiscal retrenchment (reducing public spending or increasing tax levels). This would be catastrophic however, if this is adopted by a large number of economies at the same time.

Leads to economic stagnation and soaring unemployment.