Global economic crisis 2007 2010: Is it really so recent? Implications for the future from the lessons of economic history

Abstract

This paper demonstrates that the current economic crisis has its roots in the evolution of the global economy during the 1960s. The gradual increase of US debt from the 1960s accompanied by the deficit in the US trade balance due to international competition from EU, Japan, and later from China and the other emerging economies had played a pivotal role in the current crisis. Furthermore, the transformation of the international financial markets and the shift from financing real foreign direct investment projects to finance mainly high-risk high-return portfolio investments has also created long-term harmful effects for the global economy. In addition, the inability of the EU to establish an optimal currency area has generated additional instability in the international economic system. This paper argues that the current crisis is the outcome of deeper institutional rigidities, when compared with past crises, and thus the whole global economic status is at risk.