Development and Finance from issue 2010/3

Péter Farkas

Global Economic Crisis and Its Lessons

- Abstract -

JEL F-01


Tensions accumulated in the global economy by the new millennium were much more intense than those before the 1929-33 crisis. While the volumes of international financial flows during the past two centuries to the late 1960s were roughly equal to international trade figures, at the beginning of this crisis they were larger by nearly a hundred-fold! World stock exchanges have soared in the past 15-20 years. In the years preceding the current crisis, the registered value (capitalisation) of stock exchanges somewhat exceeded global GDP, while 160-180% of gross domestic product was registered on US exchanges, with annual fluctuations. The third deterrent example: according to data from the bank of central banks, the Swiss BIS, world debt – the total value of retail, corporate and public debt – amounts to roughly 10 times global GDP for an entire year! This situation is frightening and abnormal, even if there is likely to be some payment gridlock. (Retail debt in the USA nears annual GDP – USD 14,000 billion – while public debt amounts to USD 10,000 billion, and the real economy also has a debt of USD 10,000 billion, and we haven’t even mentioned corporate and financial institution borrowing yet.)

Péter Farkas, PhD, senior research fellow (Institute for World Economics of the Hungarian Academy of Sciences)

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