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What Went Wrong? Alternative interpretations of the global financial crisis

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  • Jan Priewe
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    Abstract

    This paper first reviews different interpretations of the global financial crisis of 2008-2009 (and its aftermath), focusing on the proximate causes in the financial sector of the United States. However, behind the immedi-ate causes lie ultimate causes without which the crisis cannot be properly understood. These were mainly the global imbalances in trade and in cross-border capital flows, the systemic root of which lies in what the pa-per refers to as a “new Triffin dilemma†. This dilemma relates to the shortcomings of the present global currency system that uses the United States dollar as the key reserve currency, which has to serve both national and global objectives. Other ultimate causes are the trend towards a finance-driven capitalism in many OECD countries, most pronounced in the United States, and the trend towards greater income inequality, which dampens aggregate demand and contributes to financial instability as well as global imbalances. The confluence of the proximate and ultimate causes paved the way for the crisis.

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    File URL: http://finance-and-trade.htw-berlin.de/fileadmin/working_paper_series/wp_02_2010_Priewe.pdf
    File Function: First version, 2010
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    Paper provided by Hochschule fuer Technik und Wirtschaft, Berlin in its series Competence Centre on Money, Trade, Finance and Development with number 1002.

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    Length: 37 pages
    Date of creation: Jul 2010
    Date of revision:
    Publication status: Published in Berlin Working Papers on Money, Finance, Trade and Development, July 2010
    Handle: RePEc:mtf:wpaper:1002
    Contact details of provider: Web page: http://finance-and-trade.htw-berlin.de

    Keywords: working paper; daadpartnership; finance-and-trade;

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    1. Lawrence H. Summers, 2000. "International Financial Crises: Causes, Prevention, and Cures," American Economic Review, American Economic Association, vol. 90(2), pages 1-16, May.
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      [This Time Is Different: Eight Centuries of Financial Folly]      ," Introductory Chapters, Princeton University Press.
    7. Kenneth Rogoff & William Brainard & George Perry, . "Global Current Account Imbalances and Exchange Rate Adjustments," Working Paper 33687, Harvard University OpenScholar.
    8. Obstfeld, Maurice, 2005. "America’s Deficit, the World’s Problem," Center for International and Development Economics Research, Working Paper Series qt7j3436bf, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
    9. Michael P. Dooley & David Folkerts-Landau & Peter M. Garber, 2005. "An essay on the revived Bretton Woods system," Proceedings, Federal Reserve Bank of San Francisco, issue Feb.
    10. Till van Treeck, 2009. "The macroeconomics of "financialisation" and the deeper origins of the world economic crisis," IMK Working Paper 9-2009, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    11. World Bank, 2009. "World Development Indicators 2009," World Bank Publications, The World Bank, number 4367.
    12. Franke, Günter & Krahnen, Jan Pieter, 2009. "Instabile Finanzmärkte," CFS Working Paper Series 2009/13, Center for Financial Studies (CFS).
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