Global aspects of Financial Crisis

This article is about the series of financial market events, starting in July 2007, which were the proximate cause of a weakening of the global economy. For details on the stock market crashes and bank bailouts of late 2008, see Global financial crisis of 2008–2009. For economic issues beyond the financial markets, see Late 2000s recession. For discussions of major aspects of the policy response to the crisis, see The Keynesian Resurgence of 2008 / 2009 and 2009 G-20 London summit.

A number of commentators have suggested that if the liquidity crisis continues, there could be an extended recession or worse.[46] The continuing development of the crisis prompted fears of a global economic collapse.[47] The financial crisis is likely to yield the biggest banking shakeout since the savings-and-loan meltdown.[48] Investment bank UBS stated on October 6 that 2008 would see a clear global recession, with recovery unlikely for at least two years.[49] Three days later UBS economists announced that the "beginning of the end" of the crisis had begun, with the world starting to make the necessary actions to fix the crisis: capital injection by governments; injection made systemically; interest rate cuts to help borrowers. The United Kingdom had started systemic injection, and the world's central banks were now cutting interest rates. UBS emphasized the United States needed to implement systemic injection. UBS further emphasized that this fixes only the financial crisis, but that in economic terms "the worst is still to come".[50] UBS quantified their expected recession durations on October 16: the Eurozone's would last two quarters, the United States' would last three quarters, and the United Kingdom's would last four quarters.[51]

At the end of October UBS revised its outlook downwards: the forthcoming recession would be the worst since the Reagan recession of 1981 and 1982 with negative 2009 growth for the US, Eurozone, UK and Canada; very limited recovery in 2010; but not as bad as the Great Depression.[52]

It was widely argued that an international crisis required an international solution. In The Keynesian Resurgence of 2008 / 2009, the economist John Maynard Keynes was widely cited as providing the best insight into the kind of policy response required, including the need for international coordination of economic policy responses. Keynes recognised that a Fiscal stimulus in the presence of a financial crisis was unlikey to restore growth.