Sandro Scocco: Stabilization policies - drowning in debt?

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A presentation by Sandro Scocco at the Global Utmaning seminar "Inequality and crises"in Stockholm on the 2nd of November 2011

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Sandro Scocco: Stabilization policies - drowning in debt?

  1. 1. Stabilization Policies - Drowning in Debt? Sandro ScoccoChairman of Global Utmaning’s Economic Council
  2. 2. High Unemployment: Great need for further countercyclical policies!302520 Germany Greece Ireland15 Italy Portugal Spain10 United Kingdom United States50 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
  3. 3. Relatively strong rebound due to early focus on countercyclical policies Global industrial production Global stock market development Source: Barry Eichengreen Kevin H. O’Rourke 8 March 2010 www.voxeu.org
  4. 4. Countercyclical policies are expensive… Source: OECD Economic Outlook 200 Statsskuld som andel av BNP 1997 Statsskuld som andel av BNP 2007 150 Statsskuld som andel av BNP Skillnad 100 50 0 -50-100250 Statsskuld som andel av BNP 2007 Statsskuld som andel av BNP 2011200 Statsskuld som andel av BNP Skillnad150100 50 0 -50-100
  5. 5. … and the traditionally weakest are in crisis (PIIGS) 10 year bond rates
  6. 6. The Real Villain:European saving imbalances as a result of interest rate convergence in the EMU10 5 0 Germany 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Greece Ireland -5 Italy Portugal Spain-10-15-20
  7. 7. … and China joining the WTO in 2001 Global Saving imbalances USD (IMF) 600 400 200 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 China, Peoples Republic of -200 United States Euro area -400 -600 -800-1000
  8. 8. 100 120 140 160 20 40 60 80 018801883188618891892189518981901 WW21904 WW11907191019131916191919221925192819311934193719401943194619491952195519581961196419671970197319761979198219851988199119941997 Public debt in the G20 at a historical high2000200320062009
  9. 9. Who will pay the public debt?“In addition to providential rapid growth, there are three, and only three, waysof bringing down public debts.• The first one is to run primary surpluses for a sufficiently long time.• The second one is to default on all or part of the debt.• The last one is to let inflation reduce the real debt value, assuming that thedebt is not indexed and of sufficiently long maturity. HouseholdsIn the end, the question is who will pay: taxpayers in the first case, creditors inthe second case, citizens who are not well protected against inflation in thethird case.”Public Debts: Nuts, Bolts and Worries 2011Barry Eichengreen, Robert Feldman, Jeffrey Liebman, Jürgen von Hagen and Charles Wyplosz
  10. 10. High household indebtedness starts to fall…
  11. 11. …and housing prices follow
  12. 12. Can housholds and the public sector deleverage simultaneously without hurting growth?• No, not ceteris paribus – obvious risk of vicious circles. Austerity programmes increase households’ wish to deleverage• Yes, if income redistribution policies target propensity to consume. Increased demand without increased public or private indebtedness
  13. 13. 30 years of targeting propensity to save/invest Top one per cent’s share of total income
  14. 14. The two stories of the US post-war era
  15. 15. Financial bail-outs reversed wealth tax“… a €200 billion subsidy to sovereign creditors is a gigantic wealth transfer from the taxpayer toessentially the richest 5% of the world. In the US, the 5% richest households control roughly 70% ofall financial wealth, and this percentage is not much different in the rest of the world. Ultimate … weshould characterise the bailout subsidy as an "impôt pour la fortune" (“a tax for wealth”) – a wealthtax supporting the rich.”Harald HauProfessor of Economics and Finance, University of Geneva
  16. 16. "The Chinese use two brush strokes to write the word crisis. One brush stroke stands for danger; the other for opportunity. In a crisis, be aware of the danger-but recognize the opportunity."John F. Kennedy

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