Why Is The 2008 Crisis Taking So Long To Resolve? - Yilmaz Akyuz (1/2)

  February 19, 2014

Why Is The 2008 Crisis Taking So Long To Resolve? - Yilmaz Akyuz (1/2)

Economist Yilmaz Akyuz on how excessive reliance on the US Federal Reserve created more problems than it has solved
Members don't see ads. If you are a member, and you're seeing this appeal, click here


Share to Facebook Share to Twitter

I appreciate immensely The Real News reports. You report news that is covered nowhere else. - Elizabeth Sheppard
Log in and tell us why you support TRNN


Why Is The 2008 Crisis Taking So Long To Resolve? - Yilmaz Akyuz (1/2)LYNN FRIES, PRODUCER: Welcome to The Real News. I'm Lynn Fries in Geneva.

In a new research paper, economist Yilmaz Aky√ľz lays out his view on why the 2008 financial crisis is taking too long to resolve and how crisis management in the U.S. and Europe is creating more problems than it's solving. Yilmaz Aky√ľz is chief economist at the South Centre and former director at UNCTAD in the Division of Globalization and Development.

Yilmaz Aky√ľz, thank you for joining us.

YILMAZ AKY√úZ, CHIEF ECONOMIST, SOUTH CENTRE: Thank you for inviting me.

FRIES: In your paper, you write about a fundamental systemic problem, a deflationary gap in the world economy. You say it's due to underconsumption as a result of a low and declining share of wages in GDP in all the major advanced economies, including the U.S., Germany, Japan, and in China. Take us through your thoughts on that.

AKY√úZ: Well, the world economy is suffering from underconsumption, lack of effective demand, largely because the workers, the large majority of working population cannot really afford the goods and services they are producing. In fact, their purchasing power relative to what they've been producing has been falling, because the share of wages in GDP has been falling.

Despite that, before the crisis, we avoided deflationary problems and lack of effective demand because of debt-driven property and consumption bubbles in the United States, in Europe, United Kingdom, and the European periphery, which means that countries, economies do not pay wages, they were not willing to pay wages or raise wages along with productivity growth, but they preferred to lend the money, so that they were borrowing and spending. And as a result of that, we had relatively rapid growth. And this actually resulted, in the end, in growing trade imbalances, growing financial fragility, because most of these people didn't have the debt servicing capacity needed, and eventually you had the subprime bubble bursting in the United States and the bubble bursting in the U.K. and the European periphery.

Now, when crisis came, actually the policy response has widened the gap by increasing inequality.

FRIES: Talk more about fiscal policy and post-crisis recovery in the U.S. and Europe. Some economists argue that the top tax rate on the top 1 percent of income earners could be raised to over 80 percent without impairing growth. What's your take on that?

AKYÜZ: The top 1 percent actually got the entire increase in income in the United States since 2009. And, in fact, the share of the rest of the population has been falling. So inequality is increasing in Europe too because of the austerity policies. So we have actually now a bigger deflationary gap, because the workers are unable to afford the goods and services they are producing.

Now, how are we going to grow again brings you to the fundamental problem. Are we going back to business as usual? That means we're going to have debt-driven bubbles in the United States or in Europe, or we're going to be stuck in a long stagnation

FRIES: And what other policy shortcomings do you see in the U.S. and Europe post-crisis?

AKY√úZ: Well, one problem I mentioned in the crisis intervention was fiscal austerity after the initial expansion. A second shortcoming in the policy response was actually the inability, and, in fact, unwillingness, of the governments to remove debt overhang by timely, orderly, and comprehensive debt restructuring. Effectively, in Europe we saw we had some debt relief of countries like Greece. But that was not enough, and Greece was clearly unable and still clearly--it's clear that Greece is unable to pay all this debt. And Germany and the European Union are insisting that debt should be fully paid.

In the United States, the main debt problem was, of course, among the mortgage holders. And the government has not really introduced any scheme that could succeed in decreasing the mortgages to the level of the ability of the mortgage holders to pay. And the financial intervention in the crisis effectively meant bailing out the United States banks rather than the debtors, in other words, bailing out creditors, then. And the banks restored profits quickly. They got back their pre-crisis profits in 2012, and in 2013 they reached a record level of profit. Now, we haven't restored unemployment, we haven't restored the incomes of the mortgage holder, we haven't actually sorted out the debt problem. So what you have is the U.S. resolved the financial crisis for the creditors, but it did not solve the economic crisis for the workers and the large segment of the society.

FRIES: Update us on your views on the shortcomings of post-crisis monetary policy, most notably on the part of the U.S. Federal Reserve.

AKY√úZ: Well, these two major policy shortcomings, that is, fiscal austerity and a reluctance to remove debt overhang through proper restructuring, meant excessive reliance on monetary policy, that the central banks went into uncharted water, particularly in the United States, and buying large amounts of long-term bonds, both private and government, and cutting interest rates to very low levels historically.

Now, this policy has actually helped a bit in terms of lowering the long-term interest rate. There is evidence, and I'm not denying that evidence. But the problem is that it has not been very effective in stimulating spending, because the money pumped into the economy either ended up back in the central banks, in the Federal Reserve, as excess reserves of the banking system, or went into speculative activities, into stock market.

On top of it, it's created two problems, one for the United States. As I said, U.S. growth is fragile. Fed has not yet tightened policy. And I think Fed is quite unsure what will happen if they start unloading all these bonds that they're holding in their balance sheet. And we don't know what an exit is going to do. And secondly, before the Fed has even started exiting, markets started pricing in the normalization of monetary policy. And this is why we have serious problems in the developing world, which have been receiving large amounts of liquidity, money, short-term money, borrowing heavily, particularly their private sector, in international markets from 2010 onwards.

And we have the first problem of the policy response coming out in the South. I think that the next problem is going to come out in the United States itself.

FRIES: We're going to continue this conversation. Please join us for part two of our discussion on the global economy with Yilmaz Aky√ľz.

Yilmaz Aky√ľz, thank you for joining us

AKY√úZ: Thank you

FRIES: And thank you for joining us on The Real News Network.


DISCLAIMER: Please note that transcripts for The Real News Network are typed from a recording of the program. TRNN cannot guarantee their complete accuracy.


Our automatic spam filter blocks comments with multiple links and multiple users using the same IP address. Please make thoughtful comments with minimal links using only one user name. If you think your comment has been mistakenly removed please email us at contact@therealnews.com

latest stories

Elites Outraged At Trump's Refusal to Accept Election Result
Two More Land Rights Activists Assassinated in Honduras
Final Presidential Debate Accentuates Candidates' Divide on Abortion Rights
Clinton Reaffirms Commitment to No-Fly Zone in Syria
A Bloodier Battle for Mosul Might Begin After the Ouster of ISIS
Covering the Epidemic of Violence in Baltimore - TRNN Grand Opening
Justice Department Sues Pocomoke For Violating Rights of Fired Black Police Chief
Officers Withdrawn from North Dakota Following Arrest of Madison Elected Official
Fair Elections Under Attack, Just Not in the Way Donald Trump Wants You to Believe
TiSA Agreement Leaks Show Corporations Pushing Privatization of Public Services
Exxon Fighting to Shut Down Investigations Into Company's Foreknowledge of Climate Change
Opposition Calls for a General Strike As Congolese President Wins Election Delay
The Path to Actual Police Reform Starts with Real Civilian Oversight
HFC Reduction Agreement Is Historic, But No Silver Bullet for Climate Change
What the NYT Left Out About Obama's 'Secret War' in Somalia
After Mosul, Whither ISIS?
US-Russia Tensions Escalating Over Fate of Assad
Seattle Teachers in Solidarity with Black Lives Matter
'Rioting' Charges Dismissed against Journalist for Exposing State Repression Of Standing Rock Sioux
For Indigenous Lenca People in Honduras, Rebellion Is a Centuries-Old Story
Tax Breaks for Wealthy Developers Reinforce Segregation in Baltimore
Eddie Conway Interviews Brazilian Youth Militants
Journalist Amy Goodman to Turn Herself in to Defend Freedom of the Press
Who are the 'Superpolluters'?
Clinton Emails Admit Counterrevolutionary Role of Saudi Arabia in Middle East
We're Not in a New Cold War - It's Far Worse
Brazil's Social Movements Planning General Strike for November
Mock Tribunal Held Against Monsanto in the Hague
Haitian Activist Speaks Out Against Killing of Fellow Activist
US Escalates Involvement in Yemen

TheRealNewsNetwork.com, RealNewsNetwork.com, The Real News Network, Real News Network, The Real News, Real News, Real News For Real People, IWT are trademarks and service marks of Independent World Television inc. "The Real News" is the flagship show of IWT and The Real News Network.

All original content on this site is copyright of The Real News Network. Click here for more

Problems with this site? Please let us know

Linux VPS Hosting by Star Dot Hosting