GLOBAL FINANCIAL CRISIS GLOBAL FINANCIAL CRISIS singular Andrei

GLOBAL FINANCIAL CRISIS: GLOBAL? FINANCIAL? CRISIS (singular)? Andrei Illarionov, Cato Institute, Washington, USA, Institute of Economic Analysis, Moscow, Russia EFWN Annual Conference “Economic Freedom in Times of Crisis” Wroclaw, Poland, October 01, 2009 © Cato Institute, Institute of Economic Ananlysis www. cato. org, www. cato. ru, www. iea. ru

Global? Exceptions: 1. East Asia: China, Mongolia, Indonesia, Myanmar, Vietnam. 2. South Asia: India, Bangladesh, Nepal, Pakistan, Sri Lanka. 3. Australasia, incl. Australia, Brunei, Papua NG. 4. Middle East, incl. Afghanistan, Cyprus, Egypt, Iran, Iraq, Lebanon, Morocco, Syria, Qatar. 5. Africa, incl. Congo, Ethiopia, Kenya, Mauritania, Mozambique, Nigeria, Tanzania, Uganda. 6. Latin America, incl. Bolivia, Chile, Colombia, Costa Rica, Guatemala, Honduras, Panama, Paraguay, Peru, Uruguay. 7. FSU, incl. Azerbaijan, Kyrgyzstan, Tajikistan, Turkmenistan, Uzbekistan. 8. Europe: Albania, Poland. 2 © ИЭА

Financial? Examples of Financial Crises: 1. Inflationary – No. 2. Currency – No. 3. Stock market – Yes. 4. Credit – Yes. 5. Banking – Yes. 6. Budget – No. 7. Government Debt – No. 8. Private Debt – Yes. 3 © ИЭА

Crisis? Crises in 2007 -2009: 1. National and regional ones, not a global one. 2. Classic «Austrian» . 3. Stock market. 4. Banking. 5. Industrial. 6. Trade. 4 © ИЭА

1. 5 “Austrian” crises © ИЭА

NASDAQ, January 1988 – December 2002. 6 © ИЭА

US Housing Prices (Case-Schiller Index), January 1987 – June 2009. 7 © ИЭА

DJ Industrial, 1990 -2009. 8 © ИЭА

World Wheat Prices, January 1987 – July 2009. 9 © ИЭА

World Oil Prices, January 1985 – August 2009. 10 © ИЭА

Bubbles in different assets (1994 г. = 100%), January 1987 – August 2009. 11 © ИЭА

Annual Growth Rates of M 2 in the USA, August 1987 – August 2009. 12 © ИЭА

Rough Measure of Excess Liquidity in the USA (Money minus Real GDP minus CPI), growth rates, % 13 Source: IFS. © ИЭА

2. Stock Markets Crises 14 © ИЭА

DJ vs. World vs. Emerging Markets (19. 05. 08=100%) 15 © ИЭА

Commodities-driven crisis? 16 © ИЭА

Stock Markets vs. Oil prices, May 19, 2008 – September 10, 2009 17 DJI -26, 1% MSCI WORLD -28, 6% MSCI EM -29, 0% MSCI Average of 16 oil-exporting countries -41, 6% Brent Spot Price -42, 3% RTSI -53, 2% © ИЭА

Decline in Stock Markets in Oil-Exporters, May 19, 2008 – March 9, 2009. 18 © ИЭА

Stock Markets Performance in Oil-Exporters, March 9 – September 10, 2009. 19 © ИЭА

National Stock Markets: Russia vs. Saudi Arabia 20 Sources: РТС, MSCI. © ИЭА

World Oil price and RTSI, January 1998 – September 2009. 21 Sources: RTSI, US EIA, NYMEX. © ИЭА

World Oil Prices and RTSI, January 2008 – September 2009. 22 Source: RTSI, US EIA. © ИЭА

This is not a commodities-driven crisis. 23 © ИЭА

RTSI relative to DJ Industrial (19. 05. 08=100%) 24 Source: RTSI, IEA. © ИЭА

This is a policy-induced crisis. 25 © ИЭА

Stock market performance in 68 countries, August 7 – October 27, 2008. 26 Source: MSCI. © ИЭА

This is a geopolitical crisis. 27 © ИЭА

3. Industrial Recession 28 © ИЭА

Length of Industrial Decline to February 2009 29 © ИЭА

Who Was First? And Who Followed? Decline in Industrial Output from the Peak = 100%. 30 Source: ECE, UNECE, National Statistics. © ИЭА

The international crises were not originated in the US. 31 © ИЭА

Depth of Industrial Decline from the Peak to the Bottom before June 2009, % 32 © ИЭА

Cause – Institutional Heritage of Planned Economy? 33 © ИЭА

Average Monthly Rates of Industrial Decline, % 34 © ИЭА

Length of Recovery After Slump till June 2009 35 © ИЭА

Cumulative Growth After the Bottom of the Industrial Slump, % 36 © ИЭА

Monthly Growth Rates of Industrial Growth since the Bottom, % 37 © ИЭА

Transition economies were weaker in the slump, but turn out to be more flexible and dynamic in the recovery. 38 © ИЭА

4. Oil Crisis 39 © ИЭА

World Oil Output 40 Source: Energy Information Administration. © ИЭА

Length of Oil Output Decline till June 2009 41 Source: Energy Information Administration. © ИЭА

Depth in Monthly Oil Output Decline from the Peak till June 2009, % 42

Monthly Rates of Decline in Oil Output During the Crisis 43 Source: Energy Information

This is an OPEC-induced Crisis. 44 © ИЭА

World Monthly Steel Output 46 Source: World Steel Association. © ИЭА

Length of Decline in Monthly Steel Output, January 2008 – June 2009 47 Source:

Depth of Decline in Monthly Steel Output from the Peak till June 2009. 48

Average Monthly Rates of Decline in Steel Output During Slump, January 2008 – June 2009. 49 Source: World Steel Association. © ИЭА

Cumulative Increase in Monthly Steel Output since the Bottom, January 2008 – June 2009. 50 Source: World Steel Association. © ИЭА

Russia’s Share in the World Steel Output 51 Source: IEA based on data from

EU’ Share in the World Steel Output 52 Source: IEA based on data from

US Share in the World Steel Output 53 Source: IEA based on data from

China’s Share in the World Steel Output 54 Source: IEA based on data from

Keynesianism at Work: Creation of Great Depression, 1929 -1933. 56 Source: Historical Statistics of

Keynesianism at Work: How Fiscal Stimulus Killed Japanese Economic Miracle, 1960 -2007. 57 Source: Historical Statistics of Japan. © ИЭА

Economic policy response will be the 2 nd wave crisis. 58 © ИЭА

“Bunch of Crises” in 2007 -2009: 1. «Austrian» . 2. Geopolitical. 3. Institutional. 4. Structural. 5. Banking. 6. Economic Policy Response. Special Note: Not all crises were originated in or triggered by the US crisis. 59 © ИЭА