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Asset Bubbles, Debt Deflation, and Global Imbalances


  • Robert Guttmann


The article investigates the primary imbalances in our global economy, which have brought us to the brink of depression. Putting the emphasis on structural changes in our credit system following its deregulation in the 1980s, we can conclude that the confluence of financial innovation and financial globalization created a new propensity for speculative asset bubbles. When the latest bubble burst in 2007, it triggered a devastating sequence of financial instability which has driven the world economy into the worst downturn since the 1930s. Government crisis-management responses, from deficit spending to unorthodox monetary policy and bank rescues, are assessed. The global dimension of this crisis requires international policy coordination, a task made more difficult by the asymmetry of our dollar-based international monetary system encouraging excessive US deficits.

Suggested Citation

  • Robert Guttmann, 2009. "Asset Bubbles, Debt Deflation, and Global Imbalances," International Journal of Political Economy, Taylor & Francis Journals, vol. 38(2), pages 46-69.
  • Handle: RePEc:mes:ijpoec:v:38:y:2009:i:2:p:46-69 DOI: 10.2753/IJP0891-1916380202

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    References listed on IDEAS

    1. Guillermo A. Calvo & Carmen M. Reinhart, 2002. "Fear of Floating," The Quarterly Journal of Economics, Oxford University Press, vol. 117(2), pages 379-408.
    2. Jeffrey Frankel & David Parsley & Shang-Jin Wei, 2012. "Slow Pass-through Around the World: A New Import for Developing Countries?," Open Economies Review, Springer, vol. 23(2), pages 213-251, April.
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    4. Hausmann, Ricardo & Panizza, Ugo & Stein, Ernesto, 2001. "Why do countries float the way they float?," Journal of Development Economics, Elsevier, vol. 66(2), pages 387-414, December.
    5. Sven W. Arndt & J. David Richardson, 1987. "Real-Financial Linkages Among Open Economies," NBER Working Papers 2230, National Bureau of Economic Research, Inc.
    6. Bateman, Bradley W., 1987. "Keynes's Changing Conception of Probability," Economics and Philosophy, Cambridge University Press, vol. 3(01), pages 97-119, April.
    7. Ricardo Hausmann & Michael Gavin & Carmen Pagés-Serra & Ernesto H. Stein, 1999. "Financial Turmoil and Choice of Exchange Rate Regime," Research Department Publications 4170, Inter-American Development Bank, Research Department.
    8. Barry Eichengreen & Ricardo Hausmann, 1999. "Exchange rates and financial fragility," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 329-368.
    9. Agnes A Belaisch, 2003. "Exchange Rate Pass-Through in Brazil," IMF Working Papers 03/141, International Monetary Fund.
    10. Armando Baqueiro & Alejandro Diaz de Leon & Alberto Torres, 2003. "Fear of floating or fear of inflation? The role of the exchange rate pass-through," BIS Papers chapters,in: Bank for International Settlements (ed.), Monetary policy in a changing environment, volume 19, pages 338-354 Bank for International Settlements.
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    Cited by:

    1. Eckhard Hein, 2015. "Finance-dominated capitalism and re-distribution of income: a Kaleckian perspective," Cambridge Journal of Economics, Oxford University Press, vol. 39(3), pages 907-934.
    2. Hein, Eckhard, 2011. "Distribution, ‘Financialisation’ and the Financial and Economic Crisis – Implications for Post-crisis Economic Policies," MPRA Paper 31180, University Library of Munich, Germany.
    3. Bill Lucarelli, 2011. "The Economics of Financial Turbulence," Books, Edward Elgar Publishing, number 14252.
    4. Eckhard Hein, 2012. "Finance-dominated capitalism, re-distribution, household debt and financial fragility in a Kaleckian distribution and growth model," PSL Quarterly Review, Economia civile, vol. 65(260), pages 11-51.
    5. Herr, Hansjörg & Rüdiger, Sina & Pédussel Wu, Jennifer, 2016. "The Federal Reserve as lender of last resort during the subprime crisis: Successful stabilisation without structural changes," IPE Working Papers 65/2016, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    6. repec:mes:postke:v:35:y:2012:i:2:p:187-213 is not listed on IDEAS
    7. Eckhard Hein & Achim Truger, 2012. "Finance-dominated capitalism in crisis—the case for a global Keynesian New Deal," Journal of Post Keynesian Economics, Taylor & Francis Journals, vol. 35(2), pages 187-213.
    8. Robert Guttmann, 2012. "Central Banking in a Systemic Crisis: The Federal Reserve’s ‘Credit Easing’," Chapters,in: Monetary Policy and Central Banking, chapter 8 Edward Elgar Publishing.
    9. Hansjörg HERR & Sina RÜDIGER & Jennifer Pédussel WU, 2016. "The Federal Reserve as Lender of Last Resort During the Subprime Crisis – Successful Stabilisation Without Structural Changes," Journal of Economics and Political Economy, KSP Journals, vol. 3(2), pages 192-210, June.
    10. Robert Guttmann, 2015. "The heterodox notion of structural crisis," Review of Keynesian Economics, Edward Elgar Publishing, vol. 3(2), pages 194-212, April.
    11. Hein, Eckhard. & Mundt, Matthias., 2012. "Financialisation and the requirements and potentials for wage-led recovery : a review focussing on the G20," ILO Working Papers 994709323402676, International Labour Organization.

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