The Asian financial crisis was a period of financial crisis that gripped much of Asia beginning in July 1997, and raised fears of a worldwide economic meltdown due to financial contagion.

The crisis started in Thailand with the financial collapse of the Thai baht caused by the decision of the Thai government to float the baht, cutting its peg to the USD, after exhaustive efforts to support it in the face of a severe financial overextension that was in part real estate driven. At the time, Thailand had acquired a burden of foreign debt that made the country effectively bankrupt even before the collapse of its currency. As the crisis spread, most of Southeast Asia and Japan saw slumping currencies, devalued stock markets and other asset prices, and a precipitous rise in private debt.

Though there has been general agreement on the existence of a crisis and its consequences, what is less clear are the causes of the crisis, as well as its scope and resolution. Indonesia, South Korea and Thailand were the countries most affected by the crisis. Hong Kong, Malaysia, Laos and the Philippines were also hurt by the slump. The People's Republic of China, India, Taiwan, Singapore, Brunei and Vietnam were less affected, although all suffered from a loss of demand and confidence throughout the region.

Foreign debt-to-GDP ratios rose from 100% to 167% in the four large ASEAN economies in 1993–96, then shot up beyond 180% during the worst of the crisis. In South Korea, the ratios rose from 13 to 21% and then as high as 40%, while the other northern newly industrialized countries fared much better. Only in Thailand and South Korea did debt service-to-exports ratios rise.

Although most of the governments of Asia had seemingly sound fiscal policies, the International Monetary Fund (IMF) stepped in to initiate a $40 billion program to stabilize the currencies of South Korea, Thailand, and Indonesia, economies particularly hard hit by the crisis. The efforts to stem a global economic crisis did little to stabilize the domestic situation in Indonesia, however. After 30 years in power, President Suharto was forced to step down on 21 May 1998 in the wake of widespread rioting that followed sharp price increases caused by a drastic devaluation of the rupiah. The effects of the crisis lingered through 1998. In 1998 the Philippines growth dropped to virtually zero. Only Singapore and Taiwan proved relatively insulated from the shock, but both suffered serious hits in passing, the former more so due to its size and geographical location between Malaysia and Indonesia. By 1999, however, analysts saw signs that the economies of Asia were beginning to recover.

History

Until 1997, Asia attracted almost half of the total capital inflow into developing countries. The economies of Southeast Asia in particular maintained high interest rates attractive to foreign investors looking for a high rate of return. As a result the region's economies received a large inflow of money and experienced a dramatic run-up in asset prices. At the same time, the regional economies of Thailand, Malaysia, Indonesia, Singapore, and South Korea experienced high growth rates, 8–12% GDP, in the late 1980s and early 1990s. This achievement was widely acclaimed by financial institutions including the IMF and World Bank, and was known as part of the "Asian economic miracle".

In 1994, noted economist Paul Krugman published an article attacking the idea of an "Asian economic miracle". He argued that East Asia's economic growth had historically been the result of increasing capital investment. However, total factor productivity had increased only marginally or not at all. Krugman argued that only growth in total factor productivity, and not capital investment, could lead to long-term prosperity. Krugman's views would be seen by many as prescient after the financial crisis had become apparent, though he himself stated that he had not predicted the crisis nor foreseen its depth.

The causes of the debacle are many and disputed. Thailand's economy developed into a bubble fueled by "hot money". More and more was required as the size of the bubble grew. The same type of situation happened in Malaysia, and Indonesia, which had the added complication of what was called "crony capitalism". The short-term capital flow was expensive and often highly conditioned for quick profit. Development money went in a largely uncontrolled manner to certain people only, not particularly the best suited or most efficient, but those closest to the centers of power.

At the time of the mid-1990s, Thailand, Indonesia and South Korea had large private current account deficits and the maintenance of fixed exchange rates encouraged external borrowing and led to excessive exposure to foreign exchange risk in both the financial and corporate sectors. In the mid-1990s, two factors began to change their economic environment. As the U.S. economy recovered from a recession in the early 1990s, the U.S. Federal Reserve Bank under Alan Greenspan began to raise U.S. interest rates to head off inflation. This made the U.S. a more attractive investment destination relative to Southeast Asia, which had been attracting hot money flows through high short-term interest rates, and raised the value of the U.S. dollar. For the Southeast Asian nations which had currencies pegged to the U.S. dollar, the higher U.S. dollar caused their own exports to become more expensive and less competitive in the global markets. At the same time, Southeast Asia's export growth slowed dramatically in the spring of 1996, deteriorating their current account position.

Some economists have advanced the growing exports of China as a contributing factor to ASEAN nations' export growth slowdown, though these economists maintain the main cause of the crises was excessive real estate speculation. China had begun to compete effectively with other Asian exporters particularly in the 1990s after the implementation of a number of export-oriented reforms. Other economists dispute China's impact, noting that both ASEAN and China experienced simultaneous rapid export growth in the early 1990s.

Many economists believe that the Asian crisis was created not by market psychology or technology, but by policies that distorted incentives within the lender–borrower relationship. The resulting large quantities of credit that became available generated a highly leveraged economic climate, and pushed up asset prices to an unsustainable level. These asset prices eventually began to collapse, causing individuals and companies to default on debt obligations. The resulting panic among lenders led to a large withdrawal of credit from the crisis countries, causing a credit crunch and further bankruptcies. In addition, as foreign investors attempted to withdraw their money, the exchange market was flooded with the currencies of the crisis countries, putting depreciative pressure on their exchange rates. To prevent currency values collapsing, these countries' governments raised domestic interest rates to exceedingly high levels (to help diminish flight of capital by making lending more attractive to investors) and to intervene in the exchange market, buying up any excess domestic currency at the fixed exchange rate with foreign reserves. Neither of these policy responses could be sustained for long. Very high interest rates, which can be extremely damaging to an economy that is healthy, wreaked further havoc on economies in an already fragile state, while the central banks were hemorrhaging foreign reserves, of which they had finite amounts. When it became clear that the tide of capital fleeing these countries was not to be stopped, the authorities ceased defending their fixed exchange rates and allowed their currencies to float. The resulting depreciated value of those currencies meant that foreign currency-denominated liabilities grew substantially in domestic currency terms, causing more bankruptcies and further deepening the crisis.

Other economists, including Joseph Stiglitz and Jeffrey Sachs, have downplayed the role of the real economy in the crisis compared to the financial markets. The rapidity with which the crisis happened has prompted Sachs and others to compare it to a classic bank run prompted by a sudden risk shock. Sachs pointed to strict monetary and contractory fiscal policies implemented by the governments on the advice of the IMF in the wake of the crisis, while Frederic Mishkin points to the role of asymmetric information in the financial markets that led to a "herd mentality" among investors that magnified a small risk in the real economy. The crisis has thus attracted interest from behavioral economists interested in market psychology. Another possible cause of the sudden risk shock may also be attributable to the handover of Hong Kong sovereignty on 1 July 1997. During the 1990s, hot money flew into the Southeast Asia region but investors were often ignorant of the actual fundamentals or risk profiles of the respective economies. The uncertainty regarding the future of Hong Kong led investors to shrink even further away from Asia, exacerbating economic conditions in the area (subsequently leading to the depreciation of the Thai baht on 2 July 1997).

The foreign ministers of the 10 ASEAN countries believed that the well co-ordinated manipulation of their currencies was a deliberate attempt to destabilize the ASEAN economies. Former Malaysian Prime Minister Mahathir Mohamad accused George Soros of ruining Malaysia's economy with "massive currency speculation." (Soros claims to have been a buyer of the ringgit during its fall, having sold it short in 1997.) Mahathir's claims were couched in antisemitic terms, and in 2006 he apologized and withdrew the accusations.

At the 30th ASEAN Ministerial Meeting held in Subang Jaya, Malaysia, the foreign ministers issued a joint declaration on 25 July 1997 expressing serious concern and called for further intensification of ASEAN's cooperation to safeguard and promote ASEAN's interest in this regard. Coincidentally, on that same day, the central bankers of most of the affected countries were at the EMEAP (Executive Meeting of East Asia Pacific) meeting in Shanghai, and they failed to make the 'New Arrangement to Borrow' operational. A year earlier, the finance ministers of these same countries had attended the 3rd APEC finance ministers meeting in Kyoto, Japan on 17 March 1996, and according to that joint declaration, they had been unable to double the amounts available under the 'General Agreement to Borrow' and the 'Emergency Finance Mechanism'. As such, the crisis could be seen as the failure to adequately build capacity in time to prevent Currency Manipulation. This hypothesis enjoyed little support among economists, however, who argue that no single investor could have had enough impact on the market to successfully manipulate the currencies' values. In addition, the level of organization necessary to coordinate a massive exodus of investors from Southeast Asian currencies in order to manipulate their values rendered this possibility remote.

IMF Role

Such was the scope and the severity of the collapses involved that outside intervention, considered by many as a new kind of colonialism, became urgently needed. Since the countries melting down were among not only the richest in their region, but in the world, and since hundreds of billions of dollars were at stake, any response to the crisis had to be cooperative and international, in this case through the International Monetary Fund (IMF). The IMF created a series of bailouts ("rescue packages") for the most affected economies to enable affected nations to avoid default, tying the packages to reforms that were intended to make the restored Asian currency, banking, and financial systems as much like those of the United States and Europe as possible. In other words, the IMF's support was conditional on a series of drastic economic reforms influenced by neoliberal economic principles called a "structural adjustment package" (SAP). The SAPs called on crisis-struck nations to cut back on government spending to reduce deficits, allow insolvent banks and financial institutions to fail, and aggressively raise interest rates. The reasoning was that these steps would restore confidence in the nations' fiscal solvency, penalize insolvent companies, and protect currency values. Above all, it was stipulated that IMF-funded capital had to be administered rationally in the future, with no favored parties receiving funds by preference. In at least one of the affected countries the restrictions on foreign ownership were greatly reduced. There were to be adequate government controls set up to supervise all financial activities, ones that were to be independent, in theory, of private interest. Insolvent institutions had to be closed, and insolvency itself had to be clearly defined. In short, exactly the same kinds of financial institutions found in the United States and Europe had to be created in Asia, as a condition for IMF support. In addition, financial systems had to become "transparent", that is, provide the kind of reliable financial information used in the West to make sound financial decisions.

However, the greatest criticism of the IMF's role in the crisis was targeted towards its response. As country after country fell into crisis, many local businesses and governments that had taken out loans in US dollars, which suddenly became much more expensive relative to the local currency which formed their earned income, found themselves unable to pay their creditors. The dynamics of the situation were closely similar to that of the Latin American debt crisis. The effects of the SAPs were mixed and their impact controversial. Critics, however, noted the contractionary nature of these policies, arguing that in a recession, the traditional Keynesian response was to increase government spending, prop up major companies, and lower interest rates. The reasoning was that by stimulating the economy and staving off recession, governments could restore confidence while preventing economic loss. They pointed out that the U.S. government had pursued expansionary policies, such as lowering interest rates, increasing government spending, and cutting taxes, when the United States itself entered a recession in 2001, and arguably the same in the fiscal and monetary policies during the 2008–2009 Global Financial Crisis.

Although such reforms were, in most cases, long needed ), the countries most involved ended up undergoing an almost complete political and financial restructuring. They suffered permanent currency devaluations, massive numbers of bankruptcies, collapses of whole sectors of once-booming economies, real estate busts, high unemployment, and social unrest. For most of the countries involved, IMF intervention has been roundly criticized. The role of the International Monetary Fund was so controversial during the crisis that many locals called the financial crisis the "IMF crisis". Many commentators in retrospect criticized the IMF for encouraging the developing economies of Asia down the path of "fast track capitalism", meaning liberalization of the financial sector (elimination of restrictions on capital flows); maintenance of high domestic interest rates to attract portfolio investment and bank capital; and pegging of the national currency to the dollar to reassure foreign investors against currency risk.

IMF and high interest rates

The conventional high-interest-rate economic wisdom is normally employed by monetary authorities to attain the chain objectives of tightened money supply, discouraged currency speculation, stabilized exchange rate, curbed currency depreciation, and ultimately contained inflation.

In the Asian meltdown, highest IMF officials rationalized their prescribed high interest rates as follows:

From then IMF First Deputy Managing Director, Stanley Fischer (Stanley Fischer, "The IMF and the Asian Crisis," Forum Funds Lecture at UCLA, Los Angeles on March 20, 1998):

”When their governments "approached the IMF, the reserves of Thailand and South Korea were perilously low, and the Indonesian Rupiah was excessively depreciated. Thus, the first order of business was... to restore confidence in the currency. To achieve this, countries have to make it more attractive to hold domestic currency, which in turn, requires increasing interest rates temporarily, even if higher interest costs complicate the situation of weak banks and corporations...

"Why not operate with lower interest rates and a greater devaluation? This is a relevant tradeoff, but there can be no question that the degree of devaluation in the Asian countries is excessive, both from the viewpoint of the individual countries, and from the viewpoint of the international system. Looking first to the individual country, companies with substantial foreign currency debts, as so many companies in these countries have, stood to suffer far more from… currency (depreciation) than from a temporary rise in domestic interest rates…. Thus, on macroeconomics… monetary policy has to be kept tight to restore confidence in the currency..."

From the then IMF Managing Director Michel Camdessus himself ("Doctor Knows Best?" Asiaweek, 17 July 1998, p. 46):

"To reverse (currency depreciation), countries have to make it more attractive to hold domestic currency, and that means temporarily raising interest rates, even if this (hurts) weak banks and corporations."

Thailand

From 1985 to 1996, Thailand's economy grew at an average of over 9% per year, the highest economic growth rate of any country at the time. Inflation was kept reasonably low within a range of 3.4–5.7%. The baht was pegged at 25 to the US dollar.

On 14 May and 15 May 1997, the Thai baht was hit by massive speculative attacks. On 30 June 1997, Prime Minister Chavalit Yongchaiyudh said that he would not devalue the baht. This was the spark that ignited the Asian financial crisis as the Thai government failed to defend the baht, which was pegged to the basket of currencies in which the U.S. dollar was the main component, against international speculators. Thailand's booming economy came to a halt amid massive layoffs in finance, real estate, and construction that resulted in huge numbers of workers returning to their villages in the countryside and 600,000 foreign workers being sent back to their home countries. The baht devalued swiftly and lost more than half of its value. The baht reached its lowest point of 56 units to the US dollar in January 1998. The Thai stock market dropped 75%. Finance One, the largest Thai finance company until then, collapsed.

The Thai government was eventually forced to float the Baht, on 2 July 1997. On 11 August 1997, the IMF unveiled a rescue package for Thailand with more than $17 billion, subject to conditions such as passing laws relating to bankruptcy (reorganizing and restructuring) procedures and establishing strong regulation frameworks for banks and other financial institutions. The IMF approved on 20 August 1997, another bailout package of $3.9 billion.

By 2001, Thailand's economy had recovered. The increasing tax revenues allowed the country to balance its budget and repay its debts to the IMF in 2003, four years ahead of schedule. The Thai baht continued to appreciate to 29 Baht to the Dollar in October 2010.

Indonesia

In June 1997, Indonesia seemed far from crisis. Unlike Thailand, Indonesia had low inflation, a trade surplus of more than $900 million, huge foreign exchange reserves of more than $20 billion, and a good banking sector. But a large number of Indonesian corporations had been borrowing in U.S. dollars. During the preceding years, as the rupiah had strengthened respective to the dollar, this practice had worked well for these corporations; their effective levels of debt and financing costs had decreased as the local currency's value rose.

In July 1997, when Thailand floated the baht, Indonesia's monetary authorities widened the rupiah trading band from 8% to 12%. The rupiah suddenly came under severe attack in August. On 14 August 1997, the managed floating exchange regime was replaced by a free-floating exchange rate arrangement. The rupiah dropped further. The IMF came forward with a rescue package of $23 billion, but the rupiah was sinking further amid fears over corporate debts, massive selling of rupiah, and strong demand for dollars. The rupiah and the Jakarta Stock Exchange touched a historic low in September. Moody's eventually downgraded Indonesia's long-term debt to 'junk bond'.

Although the rupiah crisis began in July and August 1997, it intensified in November when the effects of that summer devaluation showed up on corporate balance sheets. Companies that had borrowed in dollars had to face the higher costs imposed upon them by the rupiah's decline, and many reacted by buying dollars through selling rupiah, undermining the value of the latter further. In February 1998, President Suharto sacked Bank Indonesia Governor J. Soedradjad Djiwandono, but this proved insufficient. Suharto resigned under public pressure in May 1998 and Vice President B. J. Habibie was elevated in his place. Before the crisis, the exchange rate between the rupiah and the dollar was roughly 2,600 rupiah to 1 USD. The rate plunged to over 11,000 rupiah to 1 USD on 9 January 1998, with spot rates over 14,000 during January 23–26 and trading again over 14,000 for about six weeks during June–July 1998. On 31 December 1998, the rate was almost exactly 8,000 to 1 USD. Indonesia lost 13.5% of its GDP that year.

South Korea

Macroeconomic fundamentals in South Korea were good but the banking sector was burdened with non-performing loans as its large corporations were funding aggressive expansions. During that time, there was a haste to build great conglomerates to compete on the world stage. Many businesses ultimately failed to ensure returns and profitability. The South Korean conglomerates, more or less completely controlled by the government, simply absorbed more and more capital investment. Eventually, excess debt led to major failures and takeovers. For example, in July 1997, South Korea's third-largest car maker, Kia Motors, asked for emergency loans. In the wake of the Asian market downturn, Moody's lowered the credit rating of South Korea from A1 to A3, on 28 November 1997, and downgraded again to B2 on 11 December. That contributed to a further decline in South Korean shares since stock markets were already bearish in November. The Seoul stock exchange fell by 4% on 7 November 1997. On 8 November, it plunged by 7%, its biggest one-day drop to that date. And on 24 November, stocks fell a further 7.2% on fears that the IMF would demand tough reforms. In 1998, Hyundai Motors took over Kia Motors. Samsung Motors' 5 billion dollar venture was dissolved due to the crisis, and eventually Daewoo Motors was sold to the American company General Motors (GM).

The South Korean Won, meanwhile, weakened to more than 1,700 per dollar from around 800. Despite an initial sharp economic slowdown and numerous corporate bankruptcies, South Korea has managed to triple its per capita GDP in dollar terms since 1997. Indeed, it resumed its role as the world's fastest-growing economy—since 1960, per capita GDP has grown from $80 in nominal terms to more than $21,000 as of 2007. However, like the chaebol, South Korea's government did not escape unscathed. Its national debt-to-GDP ratio more than doubled (app. 13% to 30%) as a result of the crisis.

In South Korea, the crisis is also commonly referred to as the IMF crisis.

Philippines

The Philippine central bank raised interest rates by 1.75 percentage points in May 1997 and again by 2 points on 19 June. Thailand triggered the crisis on 2 July and on 3 July, the Philippine Central Bank was forced to intervene heavily to defend the peso, raising the overnight rate from 15% to 32% right upon the onset of the Asian crisis in mid-July 1997. The peso fell significantly, from 26 pesos per dollar at the start of the crisis, to 38 pesos as of mid-1999, and to 54 pesos as of first half August 2001.

The Philippine economy recovered from a contraction of 0.6% in GDP during the worst part of the crisis to GDP growth of some 3% by 2001, despite scandals of the administration of Joseph Estrada in 2001, most notably the "jueteng" scandal, causing the PSE Composite Index, the main index of the Philippine Stock Exchange, to fall to some 1000 points from a high of some 3000 points in 1997. The peso fell even further, trading at levels of about 55 pesos to the US dollar. Later that year, Estrada was on the verge of impeachment but his allies in the senate voted against the proceedings to continue further. This led to popular protests culminating in the "EDSA II Revolution", which finally forced his resignation and elevated Gloria Macapagal-Arroyo to the presidency. Arroyo managed to lessen the crisis in the country, which led to the recovery of the Philippine peso to about 50 pesos by the year's end and traded at around 41 pesos to a dollar by end 2007. The stock market also reached an all time high in 2007 and the economy is growing by at least more than 7 percent, its highest in nearly 2 decades.

Hong Kong

In October 1997, the Hong Kong dollar, which had been pegged at 7.8 to the U.S. dollar since 1983, came under speculative pressure because Hong Kong's inflation rate had been significantly higher than the U.S.'s for years. Monetary authorities spent more than US$1 billion to defend the local currency. Since Hong Kong had more than US$80 billion in foreign reserves, which is equivalent to 700% of its M1 money supply and 45% of its M3 money supply, the Hong Kong Monetary Authority (effectively the city's central bank) managed to maintain the peg.

Stock markets became more and more volatile; between 20 October and 23 October the Hang Seng Index dropped 23%. The Hong Kong Monetary Authority then promised to protect the currency. On 15 August 1998, it raised overnight interest rates from 8% to 23%, and at one point to 500%. The HKMA had recognized that speculators were taking advantage of the city's unique currency-board system, in which overnight rates automatically increase in proportion to large net sales of the local currency. The rate hike, however, increased downward pressure on the stock market, allowing speculators to profit by short selling shares. The HKMA started buying component shares of the Hang Seng Index in mid-August.

The HKMA and Donald Tsang, then the Financial Secretary, declared war on speculators. The Government ended up buying approximately HK$120 billion (US$15 billion) worth of shares in various companies, and became the largest shareholder of some of those companies (e.g. the government owned 10% of HSBC) at the end of August, when hostilities ended with the closing of the August Hang Seng Index futures contract. In 1999, the Government started selling those shares by launching the Tracker Fund of Hong Kong, making a profit of about HK$30 billion (US$4 billion).

Malaysia

Before the crisis, Malaysia had a large current account deficit of 5% of its GDP. At the time, Malaysia was a popular investment destination, and this was reflected in KLSE activity which was regularly the most active stock exchange in the world (with turnover exceeding even markets with far higher capitalization like the NYSE). Expectations at the time were that the growth rate would continue, propelling Malaysia to developed status by 2020, a government policy articulated in Wawasan 2020. At the start of 1997, the KLSE Composite index was above 1,200, the ringgit was trading above 2.50 to the dollar, and the overnight rate was below 7%.

In July 1997, within days of the Thai baht devaluation, the Malaysian ringgit was "attacked" by speculators. The overnight rate jumped from under 8% to over 40%. This led to rating downgrades and a general sell off on the stock and currency markets. By end of 1997, ratings had fallen many notches from investment grade to junk, the KLSE had lost more than 50% from above 1,200 to under 600, and the ringgit had lost 50% of its value, falling from above 2.50 to under 4.57 on (Jan 23, 1998) to the dollar. The then premier, Mahathir Mohammad imposed strict capital controls and introduced a 3.80 peg against the US dollar

In 1998, the output of the real economy declined plunging the country into its first recession for many years. The construction sector contracted 23.5%, manufacturing shrunk 9% and the agriculture sector 5.9%. Overall, the country's gross domestic product plunged 6.2% in 1998. During that year, the ringgit plunged below 4.7 and the KLSE fell below 270 points. In September that year, various defensive measures were announced to overcome the crisis. The principal measure taken were to move the ringgit from a free float to a fixed exchange rate regime. Bank Negara fixed the ringgit at 3.8 to the dollar. Capital controls were imposed while aid offered from the IMF was refused. Various task force agencies were formed. The Corporate Debt Restructuring Committee dealt with corporate loans. Danaharta discounted and bought bad loans from banks to facilitate orderly asset realization. Danamodal recapitalized banks.

Growth then settled at a slower but more sustainable pace. The massive current account deficit became a fairly substantial surplus. Banks were better capitalized and NPLs were realised in an orderly way. Small banks were bought out by strong ones. A large number of PLCs were unable to regulate their financial affairs and were delisted. Compared to the 1997 current account, by 2005, Malaysia was estimated to have a US$14.06 billion surplus. Asset values however, have not returned to their pre-crisis highs. In 2005 the last of the crisis measures were removed as the ringgit was taken off the fixed exchange system. But unlike the pre-crisis days, it did not appear to be a free float, but a managed float, like the Singapore dollar.

Singapore

As the financial crisis spread the economy of Singapore dipped into a short recession. The short duration and milder effect on its economy was credited to the active management by the government. For example, the Monetary Authority of Singapore allowed for a gradual 20% depreciation of the Singapore dollar to cushion and guide the economy to a soft landing. The timing of government programs such as the Interim Upgrading Program and other construction related projects were brought forward. Instead of allowing the labor markets to work, the National Wage Council pre-emptively agreed to Central Provident Fund cuts to lower labor costs, with limited impact on disposable income and local demand. Unlike in Hong Kong, no attempt was made to directly intervene in the capital markets and the Straits Times Index was allowed to drop 60%. In less than a year, the Singaporean economy fully recovered and continued on its growth trajectory.

China

The Chinese currency, the renminbi (RMB), had been pegged to the US dollar at a ratio of 8.3 RMB to the dollar, in 1994. Having largely kept itself above the fray throughout 1997–1998 there was heavy speculation in the Western press that China would soon be forced to devalue its currency to protect the competitiveness of its exports vis-a-vis those of the ASEAN nations, whose exports became cheaper relative to China's. However, the RMB's non-convertibility protected its value from currency speculators, and the decision was made to maintain the peg of the currency, thereby improving the country's standing within Asia. The currency peg was partly scrapped in July 2005 rising 2.3% against the dollar, reflecting pressure from the United States.

Unlike investments of many of the Southeast Asian nations, almost all of China's foreign investment took the form of factories on the ground rather than securities, which insulated the country from rapid capital flight. While China was unaffected by the crisis compared to Southeast Asia and South Korea, GDP growth slowed sharply in 1998 and 1999, calling attention to structural problems within its economy. In particular, the Asian financial crisis convinced the Chinese government of the need to resolve the issues of its enormous financial weaknesses, such as having too many non-performing loans within its banking system, and relying heavily on trade with the United States.

United States and Japan

The "Asian flu" had also put pressure on the United States and Japan. Their markets did not collapse, but they were severely hit. On 27 October 1997, the Dow Jones industrial plunged 554 points or 7.2%, amid ongoing worries about the Asian economies. The New York Stock Exchange briefly suspended trading. The crisis led to a drop in consumer and spending confidence (see 27 October 1997 mini-crash). Indirect effects included the dot-com bubble, and years later the housing bubble and the Subprime mortgage crisis. Japan was affected because its economy is prominent in the region. Asian countries usually run a trade deficit with Japan because the latter's economy was more than twice the size of the rest of Asia together; about 40% of Japan's exports go to Asia. The Japanese yen fell to 147 as mass selling began, but Japan was the world's largest holder of currency reserves at the time, so it was easily defended, and quickly bounced back. GDP real growth rate slowed dramatically in 1997, from 5% to 1.6% and even sank into recession in 1998, due to intense competition from cheapened rivals. The Asian financial crisis also led to more bankruptcies in Japan. In addition, with South Korea's devalued currency, and China's steady gains, many companies complained outright that they could not compete.

Another longer-term result was the changing relationship between the U.S. and Japan, with the U.S. no longer openly supporting the highly artificial trade environment and exchange rates that governed economic relations between the two countries for almost five decades after World War II.

Consequences

Asia

The crisis had significant macro-level effects, including sharp reductions in values of currencies, stock markets, and other asset prices of several Asian countries. The nominal US dollar GDP of ASEAN fell by US$9.2 billion in 1997 and $218.2 billion (31.7%) in 1998. In South Korea, the $170.9 billion fall in 1998 was equal to 33.1% of the 1997 GDP. Many businesses collapsed, and as a consequence, millions of people fell below the poverty line in 1997–1998. Indonesia, South Korea and Thailand were the countries most affected by the crisis.

{|class="wikitable" !rowspan=2|Currency !!colspan=2|Exchange rate (per US$1) !!rowspan=2|Change |- |June 1997 ||July 1998 |- | Thai baht ||align=right|24.5 ||align=right|41 || 40.2% |- | Indonesian rupiah ||align=right|2,380 ||align=right|14,150 || 83.2% |- | Philippine peso ||align=right|26.3 ||align=right|42 || 37.4% |- | Malaysian ringgit ||align=right|2.5 ||align=right|4.1 || 39.0% |- | South Korean won ||align=right|850 ||align=right|1,290 || 34.1% |}

{|class="wikitable" |- !rowspan=2|Country !!colspan=2|GNP (US$1 billion)!!rowspan=2|Change |- |June 1997 ||July 1998 |- | ||align=right|170 ||align=right|102 || 40.0% |- | ||align=right|205 ||align=right|34 || 83.4% |- | ||align=right|75 ||align=right|47 || 37.3% |- | ||align=right|90 ||align=right|55 || 38.9% |- | ||align=right|430 ||align=right|283 || 34.2% |}

The above tabulation shows that despite the prompt raising of interest rates to 32% in the Philippines upon the onset of crisis in mid-July 1997, and to 65% in Indonesia upon the intensification of crisis in 1998, their local currencies depreciated just the same and did not perform better than those of South Korea, Thailand, and Malaysia, which countries had their high interest rates set at generally lower than 20% during the Asian crisis. This created grave doubts on the credibility of IMF and the validity of its high-interest-rate prescription to economic crisis.

The economic crisis also led to a political upheaval, most notably culminating in the resignations of President Suharto in Indonesia and Prime Minister General Chavalit Yongchaiyudh in Thailand. There was a general rise in anti-Western sentiment, with George Soros and the IMF in particular singled out as targets of criticisms. Heavy U.S. investment in Thailand ended, replaced by mostly European investment, though Japanese investment was sustained. Islamic and other separatist movements intensified in Southeast Asia as central authorities weakened.

More long-term consequences included reversal of the relative gains made in the boom years just preceding the crisis. Nominal US dollar GDP per capital fell 42.3% in Indonesia in 1997, 21.2% in Thailand, 19% in Malaysia, 18.5% in South Korea and 12.5% in the Philippines. The CIA World Factbook reported that the per capita income (measured by purchasing power parity) in Thailand declined from $8,800 to $8,300 between 1997 and 2005; in Indonesia it declined from $4,600 to $3,700; in Malaysia it declined from $11,100 to $10,400. Over the same period, world per capita income rose from $6,500 to $9,300. Indeed, the CIA's analysis asserted that the economy of Indonesia was still smaller in 2005 than it had been in 1997, suggesting an impact on that country similar to that of the Great Depression. Within East Asia, the bulk of investment and a significant amount of economic weight shifted from Japan and ASEAN to China and India.

The crisis has been intensively analyzed by economists for its breadth, speed, and dynamism; it affected dozens of countries, had a direct impact on the livelihood of millions, happened within the course of a mere few months, and at each stage of the crisis leading economists, in particular the international institutions, seemed a step behind. Perhaps more interesting to economists was the speed with which it ended, leaving most of the developed economies unharmed. These curiosities have prompted an explosion of literature about financial economics and a litany of explanations why the crisis occurred. A number of critiques have been leveled against the conduct of the IMF in the crisis, including one by former World Bank economist Joseph Stiglitz. Politically there were some benefits. In several countries, particularly South Korea and Indonesia, there was renewed push for improved corporate governance. Rampaging inflation weakened the authority of the Suharto regime and led to its toppling in 1998, as well as accelerating East Timor's independence.

Outside Asia

After the Asian crisis, international investors were reluctant to lend to developing countries, leading to economic slowdowns in developing countries in many parts of the world. The powerful negative shock also sharply reduced the price of oil, which reached a low of about $11 per barrel towards the end of 1998, causing a financial pinch in OPEC nations and other oil exporters. This reduction in oil revenue contributed to the 1998 Russian financial crisis, which in turn caused Long-Term Capital Management in the United States to collapse after losing $4.6 billion in 4 months. A wider collapse in the financial markets was avoided when Alan Greenspan and the Federal Reserve Bank of New York organized a $3.625 billion bail-out. Major emerging economies Brazil and Argentina also fell into crisis in the late 1990s (see Argentine debt crisis).

The crisis in general was part of a global backlash against the Washington Consensus and institutions such as the IMF and World Bank, which simultaneously became unpopular in developed countries following the rise of the anti-globalization movement in 1999. Four major rounds of world trade talks since the crisis, in Seattle, Doha, Cancún, and Hong Kong, have failed to produce a significant agreement as developing countries have become more assertive, and nations are increasingly turning toward regional or bilateral free trade agreements (FTAs) as an alternative to global institutions. Many nations learned from this, and quickly built up foreign exchange reserves as a hedge against attacks, including Japan, China, South Korea. Pan Asian currency swaps were introduced in the event of another crisis. However, interestingly enough, such nations as Brazil, Russia, and India as well as most of East Asia began copying the Japanese model of weakening their currencies, restructuring their economies so as to create a current account surplus to build large foreign currency reserves. This has led to an ever increasing funding for US treasury bonds, allowing or aiding housing (in 2001–2005) and stock asset bubbles (in 1996–2000) to develop in the United States.

See also

Financial crisis

Liquidity crisis

Financial contagion

List of finance topics

Stock disasters in Hong Kong

References

;Books

Kaufman, GG., Krueger, TH., Hunter, WC. (1999) ''The Asian Financial Crisis: Origins, Implications and Solutions''. Springer. ISBN 0-7923-8472-5

Fengbo Zhang: Opinion on Financial Crisis, 6. Defeating the World Financial Storm China Youth Publishing House (2000)

Noland, Markus, Li-gang Liu, Sherman Robinson, and Zhi Wang. (1998) ''Global Economic Effects of the Asian Currency Devaluations''. Policy Analyses in International Economics, no. 56. Washington, DC: Institute for International Economics.

Pempel, T. J. (1999) ''The Politics of the Asian Economic Crisis''. Ithaca, NY: Cornell University Press.

Ries, Philippe. (2000) ''The Asian Storm: Asia's Economic Crisis Examined''.

Tecson, Marcelo L. (2005) ''Puzzlers: Economic Sting'' (The Case Against IMF, Central Banks, and IMF-Prescribed High Interest Rates) Makati City, Philippines: Raiders of the Lost Gold Publication

Muchhala, Bhumika, ed. (2007) ''Ten Years After: Revisiting the Asian Financial Crisis''. Washington, DC: Woodrow Wilson International Center for Scholars Asia Program.

;Papers

Ngian Kee Jin (March 2000). ''Coping with the Asian Financial Crisis: The Singapore Experience''. Institute of Southeast Asian Studies. ISSN 0219-3582

Tiwari, Rajnish (2003). ''Post-crisis Exchange Rate Regimes in Southeast Asia'', Seminar Paper, University of Hamburg.

Kilgour, Andrea (1999). ''The changing economic situation in Vietnam: A product of the Asian crisis?''

S. Radelet, J.D. Sachs, R.N. Cooper, B.P. Bosworth (1998). ''The East Asian Financial Crisis: Diagnosis, Remedies, Prospects''. Brookings Papers on Economic Activity.

Stiglitz, Joseph (1996). ''Some Lessons From The East Asian Miracle''. The World Bank Research Observer.

Weisbrot, Mark (August 2007). ''Ten Years After: The Lasting Impact of the Asian Financial Crisis''. Center for Economic and Policy Research.

Tecson, Marcelo L. (2009), ''"IMF Must Renounce Its Weapon of Mass Destruction: High Interest Rates"'' (4-part paper on ''high-interest-rate fallacies and alternatives'', emailed to IMF and others on 27 January 2009)

;Other

Is Thailand on the road to recovery, article by Australian photo-journalist John Le Fevre that looks at the effects of the Asian Economic Crisis on Thailand's construction industry

Women bear brunt of crisis, article by Australian photo-journalist John Le Fevre examining the effects of the Asian Economic Crisis on Asia's female workforce

The Crash (transcript only), from the PBS series Frontline

;Specific

External links

Congressional Research Service report for US Congress

Category:Article Feedback Pilot Asian Financial Crisis, 1997 Asian Financial Crisis, 1997 Asian Financial Crisis, 1997 Category:Economy of Asia Category:Finance in Hong Kong Category:Economy of Indonesia Category:Finance in China Category:Economy of Singapore Category:Economy of South Korea Category:Economy of Thailand Category:Financial crises Category:Stock market crashes Category:History of Asia Category:Economic history of the People's Republic of China Category:History of Hong Kong Category:New Order (Indonesia) Category:History of Singapore Category:20th century in Thailand Category:Economic history of South Korea Category:Economic history of Japan Category:Economic history of Malaysia Category:Economic history of the Philippines Category:1990s economic history Asian Financial Crisis, 1997

ca:Crisi financera del sud-est asiàtic da:Asienkrisen de:Asienkrise es:Crisis financiera asiática fr:Crise économique asiatique ko:아시아 금융 위기 id:Krisis finansial Asia 1997 it:Crisi finanziaria asiatica he:המשבר הפיננסי באסיה (1997) ka:აზიის ფინანსური კრიზისი 1997 lt:Azijos finansų krizė ms:Krisis Kewangan Asia 1997 mn:1997 оны Азийн санхүүгийн хямрал nl:Aziatische financiële crisis ja:アジア通貨危機 no:Asiakrisen pl:Azjatycki kryzys finansowy pt:Crise financeira asiática de 1997 ru:Азиатский финансовый кризис sh:Istočnoazijska ekonomska kriza fi:Aasian talouskriisi sv:Asienkrisen th:วิกฤตการณ์ทางการเงินในเอเชีย พ.ศ. 2540 tr:1997 Doğu Asya Mali Krizi uk:Азійська фінансова криза vi:Khủng hoảng tài chính châu Á 1997 zh:亞洲金融危機

The term financial crisis is applied broadly to a variety of situations in which some financial institutions or assets suddenly lose a large part of their value. In the 19th and early 20th centuries, many financial crises were associated with banking panics, and many recessions coincided with these panics. Other situations that are often called financial crises include stock market crashes and the bursting of other financial bubbles, currency crises, and sovereign defaults. Financial crises directly result in a loss of paper wealth; they do not directly result in changes in the real economy unless a recession or depression follows.

Many economists have offered theories about how financial crises develop and how they could be prevented. There is little consensus, however, and financial crises are still a regular occurrence around the world.

Types of financial crisis

Banking crisis

When a bank suffers a sudden rush of withdrawals by depositors, this is called a ''bank run''. Since banks lend out most of the cash they receive in deposits (see fractional-reserve banking), it is difficult for them to quickly pay back all deposits if these are suddenly demanded, so a run may leave the bank in bankruptcy, causing many depositors to lose their savings unless they are covered by deposit insurance. A situation in which bank runs are widespread is called a ''systemic banking crisis'' or just a ''banking panic''. A situation without widespread bank runs, but in which banks are reluctant to lend, because they worry that they have insufficient funds available, is often called a credit crunch. In this way, the banks become an accelerator of a financial crisis.

Examples of bank runs include the run on the Bank of the United States in 1931 and the run on Northern Rock in 2007. The collapse of Bear Stearns in 2008 has also sometimes been called a bank run, even though Bear Stearns was an investment bank rather than a commercial bank. The U.S. savings and loan crisis of the 1980s led to a credit crunch which is seen as a major factor in the U.S. recession of 1990–91.

Speculative bubbles and crashes

Economists say that a financial asset (stock, for example) exhibits a ''bubble'' when its price exceeds the present value of the future income (such as interest or dividends) that would be received by owning it to maturity. If most market participants buy the asset primarily in hopes of selling it later at a higher price, instead of buying it for the income it will generate, this could be evidence that a bubble is present. If there is a bubble, there is also a risk of a ''crash'' in asset prices: market participants will go on buying only as long as they expect others to buy, and when many decide to sell the price will fall. However, it is difficult to tell in practice whether an asset's price actually equals its fundamental value, so it is hard to detect bubbles reliably. Some economists insist that bubbles never or almost never occur.

Well-known examples of bubbles (or purported bubbles) and crashes in stock prices and other asset prices include the Dutch tulip mania, the Wall Street Crash of 1929, the Japanese property bubble of the 1980s, the crash of the dot-com bubble in 2000–2001, and the now-deflating United States housing bubble.

International financial crises

When a country that maintains a fixed exchange rate is suddenly forced to devalue its currency because of a speculative attack, this is called a ''currency crisis'' or ''balance of payments crisis''. When a country fails to pay back its sovereign debt, this is called a ''sovereign default''. While devaluation and default could both be voluntary decisions of the government, they are often perceived to be the involuntary results of a change in investor sentiment that leads to a sudden stop in capital inflows or a sudden increase in capital flight.

Several currencies that formed part of the European Exchange Rate Mechanism suffered crises in 1992–93 and were forced to devalue or withdraw from the mechanism. Another round of currency crises took place in Asia in 1997–98. Many Latin American countries defaulted on their debt in the early 1980s. The 1998 Russian financial crisis resulted in a devaluation of the ruble and default on Russian government bonds.

Wider economic crises

Negative GDP growth lasting two or more quarters is called a ''recession''. An especially prolonged recession may be called a ''depression'', while a long period of slow but not necessarily negative growth is sometimes called economic stagnation. Since these phenomena affect much more than the financial system they are not usually considered financial crises as such though there are clearly links between the two.

Some economists argue that many recessions have been caused in large part by financial crises. One important example is the Great Depression, which was preceded in many countries by bank runs and stock market crashes. The subprime mortgage crisis and the bursting of other real estate bubbles around the world also led to recession in the U.S. and a number of other countries in late 2008 and 2009.

Some economists argue that financial crises are caused by recessions instead of the other way around, and that even where a financial crisis is the initial shock that sets off a recession, other factors may be more important in prolonging the recession. In particular, Milton Friedman and Anna Schwartz argued that the initial economic decline associated with the crash of 1929 and the bank panics of the 1930s would not have turned into a prolonged depression if it had not been reinforced by monetary policy mistakes on the part of the Federal Reserve, a position supported by Ben Bernanke.

Causes and consequences of financial crises

Strategic complementarities in financial markets

It is often observed that successful investment requires each investor in a financial market to guess what other investors will do. George Soros has called this need to guess the intentions of others 'reflexivity'. Similarly, John Maynard Keynes compared financial markets to a beauty contest game in which each participant tries to predict which model ''other'' participants will consider most beautiful.

Furthermore, in many cases investors have incentives to coordinate their choices. For example, someone who thinks other investors want to buy lots of Japanese yen may expect the yen to rise in value, and therefore has an incentive to buy yen too. Likewise, a depositor in IndyMac Bank who expects other depositors to withdraw their funds may expect the bank to fail, and therefore has an incentive to withdraw too. Economists call an incentive to mimic the strategies of others ''strategic complementarity''.

It has been argued that if people or firms have a sufficiently strong incentive to do the same thing they expect others to do, then ''self-fulfilling prophecies'' may occur. For example, if investors expect the value of the yen to rise, this may cause its value to rise; if depositors expect a bank to fail this may cause it to fail. Therefore, financial crises are sometimes viewed as a vicious circle in which investors shun some institution or asset because they expect others to do so.

Leverage

''Leverage'', which means borrowing to finance investments, is frequently cited as a contributor to financial crises. When a financial institution (or an individual) only invests its own money, it can, in the very worst case, lose its own money. But when it borrows in order to invest more, it can potentially earn more from its investment, but it can also lose more than all it has. Therefore leverage magnifies the potential returns from investment, but also creates a risk of bankruptcy. Since bankruptcy means that a firm fails to honor all its promised payments to other firms, it may spread financial troubles from one firm to another (see 'Contagion' below).

The average degree of leverage in the economy often rises prior to a financial crisis. For example, borrowing to finance investment in the stock market ("margin buying") became increasingly common prior to the Wall Street Crash of 1929.

Asset-liability mismatch

Another factor believed to contribute to financial crises is ''asset-liability mismatch'', a situation in which the risks associated with an institution's debts and assets are not appropriately aligned. For example, commercial banks offer deposit accounts which can be withdrawn at any time and they use the proceeds to make long-term loans to businesses and homeowners. The mismatch between the banks' short-term liabilities (its deposits) and its long-term assets (its loans) is seen as one of the reasons bank runs occur (when depositors panic and decide to withdraw their funds more quickly than the bank can get back the proceeds of its loans). Likewise, Bear Stearns failed in 2007–08 because it was unable to renew the short-term debt it used to finance long-term investments in mortgage securities.

In an international context, many emerging market governments are unable to sell bonds denominated in their own currencies, and therefore sell bonds denominated in US dollars instead. This generates a mismatch between the currency denomination of their liabilities (their bonds) and their assets (their local tax revenues), so that they run a risk of sovereign default due to fluctuations in exchange rates.

Uncertainty and herd behavior

Many analyses of financial crises emphasize the role of investment mistakes caused by lack of knowledge or the imperfections of human reasoning. Behavioral finance studies errors in economic and quantitative reasoning. Psychologist Torbjorn K A Eliazonhas also analyzed failures of economic reasoning in his concept of 'œcopathy'.

Historians, notably Charles P. Kindleberger, have pointed out that crises often follow soon after major financial or technical innovations that present investors with new types of financial opportunities, which he called "displacements" of investors' expectations. Early examples include the South Sea Bubble and Mississippi Bubble of 1720, which occurred when the notion of investment in shares of company stock was itself new and unfamiliar, and the Crash of 1929, which followed the introduction of new electrical and transportation technologies. More recently, many financial crises followed changes in the investment environment brought about by financial deregulation, and the crash of the dot com bubble in 2001 arguably began with "irrational exuberance" about Internet technology.

Unfamiliarity with recent technical and financial innovations may help explain how investors sometimes grossly overestimate asset values. Also, if the first investors in a new class of assets (for example, stock in "dot com" companies) profit from rising asset values as other investors learn about the innovation (in our example, as others learn about the potential of the Internet), then still more others may follow their example, driving the price even higher as they rush to buy in hopes of similar profits. If such "herd behavior" causes prices to spiral up far above the true value of the assets, a crash may become inevitable. If for any reason the price briefly falls, so that investors realize that further gains are not assured, then the spiral may go into reverse, with price decreases causing a rush of sales, reinforcing the decrease in prices.

Regulatory failures

Governments have attempted to eliminate or mitigate financial crises by regulating the financial sector. One major goal of regulation is transparency: making institutions' financial situations publicly known by requiring regular reporting under standardized accounting procedures. Another goal of regulation is making sure institutions have sufficient assets to meet their contractual obligations, through reserve requirements, capital requirements, and other limits on leverage.

Some financial crises have been blamed on insufficient regulation, and have led to changes in regulation in order to avoid a repeat. For example, the Managing Director of the IMF, Dominique Strauss-Kahn, has blamed the financial crisis of 2008 on 'regulatory failure to guard against excessive risk-taking in the financial system, especially in the US'. Likewise, the New York Times singled out the deregulation of credit default swaps as a cause of the crisis.

However, excessive regulation has also been cited as a possible cause of financial crises. In particular, the Basel II Accord has been criticized for requiring banks to increase their capital when risks rise, which might cause them to decrease lending precisely when capital is scarce, potentially aggravating a financial crisis.

International regulatory convergence has been interpreted in terms of regulatory herding, deepening market herding (discussed above) and so increasing systemic risk. From this perspective, maintaining diverse regulatory regimes would be a safeguard.

Fraud

Fraud has played a role in the collapse of some financial institutions, when companies have attracted depositors with misleading claims about their investment strategies, or have embezzled the resulting income. Examples include Charles Ponzi's scam in early 20th century Boston, the collapse of the MMM investment fund in Russia in 1994, the scams that led to the Albanian Lottery Uprising of 1997, and the collapse of Madoff Investment Securities in 2008.

Many rogue traders that have caused large losses at financial institutions have been accused of acting fraudulently in order to hide their trades. Fraud in mortgage financing has also been cited as one possible cause of the 2008 subprime mortgage crisis; government officials stated on September 23, 2008 that the FBI was looking into possible fraud by mortgage financing companies Fannie Mae and Freddie Mac, Lehman Brothers, and insurer American International Group. Likewise it has been argued that many financial companies failed in the recent crisis because their managers failed to carry out their fiduciary duties.

Contagion

''Contagion'' refers to the idea that financial crises may spread from one institution to another, as when a bank run spreads from a few banks to many others, or from one country to another, as when currency crises, sovereign defaults, or stock market crashes spread across countries. When the failure of one particular financial institution threatens the stability of many other institutions, this is called ''systemic risk''.

One widely-cited example of contagion was the spread of the Thai crisis in 1997 to other countries like South Korea. However, economists often debate whether observing crises in many countries around the same time is truly caused by contagion from one market to another, or whether it is instead caused by similar underlying problems that would have affected each country individually even in the absence of international linkages.

Recessionary effects

Some financial crises have little effect outside of the financial sector, like the Wall Street crash of 1987, but other crises are believed to have played a role in decreasing growth in the rest of the economy. There are many theories why a financial crisis could have a recessionary effect on the rest of the economy. These theoretical ideas include the 'financial accelerator', 'flight to quality' and 'flight to liquidity', and the Kiyotaki-Moore model. Some 'third generation' models of currency crises explore how currency crises and banking crises together can cause recessions.

Theories of financial crises

Marxist theories

Recurrent major depressions in the world economy at the pace of 20 and 50 years (often referred to as the business cycle) have been the subject of studies since Jean Charles Léonard de Sismondi (1773–1842) provided the first theory of crisis in a critique of classical political economy's assumption of equilibrium between supply and demand. Developing an economic crisis theory become the central recurring concept throughout Karl Marx's mature work. Marx's law of the tendency for the rate of profit to fall borrowed many features of the presentation of John Stuart Mill's discussion ''Of the Tendency of Profits to a Minimum'' (Principles of Political Economy Book IV Chapter IV). The theory is a corrollary of the ''Tendency towards the Centralization of Profits''.

In a capitalist system, successfully-operating businesses return less money to their workers (in the form of wages) than the value of the goods produced by those workers (i.e. the amount of money the products are sold for). This profit first goes towards covering the initial investment in the business. In the long-run, however, when one considers the combined economic activity of all successfully-operating business, it is clear that less money (in the form of wages) is being returned to the mass of the population (the workers) than is available to them to buy all of these goods being produced. Furthermore, the expansion of businesses in the process of competing for markets leads to an abundance of goods and a general fall in their prices, further exacerbating ''the tendency for the rate of profit to fall''.

The viability of this theory depends upon two main factors: firstly, the degree to which profit is taxed by government and returned to the mass of people in the form of welfare, family benefits and health and education spending; and secondly, the proportion of the population who are workers rather than investors/business owners. Given the extraordinary capital expenditure required to enter modern economic sectors like airline transport, the military industry, or chemical production, these sectors are extremely difficult for new businesses to enter and are being concentrated in fewer and fewer hands.

Empirical and econometric research continue especially in the world systems theory and in the debate about Nikolai Kondratiev and the so-called 50-years Kondratiev waves. Major figures of world systems theory, like Andre Gunder Frank and Immanuel Wallerstein, consistently warned about the crash that the world economy is now facing. World systems scholars and Kondratiev cycle researchers always implied that Washington Consensus oriented economists never understood the dangers and perils, which leading industrial nations will be facing and are now facing at the end of the long economic cycle which began after the oil crisis of 1973.

Minsky's theory

Hyman Minsky has proposed a post-Keynesian explanation that is most applicable to a closed economy. He theorized that financial fragility is a typical feature of any capitalist economy. High fragility leads to a higher risk of a financial crisis. To facilitate his analysis, Minsky defines three approaches to financing firms may choose, according to their tolerance of risk. They are hedge finance, speculative finance, and Ponzi finance. Ponzi finance leads to the most fragility.

for hedge finance, income flows are expected to meet financial obligations in every period, including both the principal and the interest on loans.

for speculative finance, a firm must roll over debt because income flows are expected to only cover interest costs. None of the principal is paid off.

for Ponzi finance, expected income flows will not even cover interest cost, so the firm must borrow more or sell off assets simply to service its debt. The hope is that either the market value of assets or income will rise enough to pay off interest and principal.

Financial fragility levels move together with the business cycle. After a recession, firms have lost much financing and choose only hedge, the safest. As the economy grows and expected profits rise, firms tend to believe that they can allow themselves to take on speculative financing. In this case, they know that profits will not cover all the interest all the time. Firms, however, believe that profits will rise and the loans will eventually be repaid without much trouble. More loans lead to more investment, and the economy grows further. Then lenders also start believing that they will get back all the money they lend. Therefore, they are ready to lend to firms without full guarantees of success.

Lenders know that such firms will have problems repaying. Still, they believe these firms will refinance from elsewhere as their expected profits rise. This is Ponzi financing. In this way, the economy has taken on much risky credit. Now it is only a question of time before some big firm actually defaults. Lenders understand the actual risks in the economy and stop giving credit so easily. Refinancing becomes impossible for many, and more firms default. If no new money comes into the economy to allow the refinancing process, a real economic crisis begins. During the recession, firms start to hedge again, and the cycle is closed.

Proutist theories

The salient focus of Proutist theories of financial crisis is inequality and blockages in the rolling of money. These ideas were originally propounded by P.R. Sarkar. The inequality is not just seen in terms of the distribution of income but more importantly in the distribution of wealth. Ravi Batra has written extensively on the evolution in the share of wealth held by the richest one percent of the USA and its link to financial crashes. Earnings inequality in the USA peaked in 1928 and 2007, prior to market tops, which is consistent with this thesis. Another cause of a global financial crisis and depression is blockages in the circulation of money. Indeed, the recovery from the Late-2000s financial crisis has been hampered by unwillingness to lend by banks around the world.

“There are two main causes for economic depressions. First, the concentration of wealth and secondly, blockages in the rolling of money. If the capital is concentrated in the hands of a few individuals or state, the majority of people are exploited by a handful of people. As a result of this process of severe exploitation, a serious explosion takes place. This explosion is known as a depression in the economic world … The second cause: when money that is in the possession of individual or state capitalists stops rolling. Money remains inert or unutilized because those capitalists think that if the money is allowed to roll freely then their profits will decrease, even though it will bring relief to the common masses. The very psychology of the capitalists is to make profit from the rolling of money. When they discover that the investment of money does not bring profit up to their expectations, then they stop rolling the money. This keeps the money immobile or inert in various ways. As the money does not roll, there is no investment, no production, no income and hence no purchasing power, and the situation becomes so dangerous that there are few buyers to buy the commodities.” – P.R. Sarkar, 1987

Coordination games

Mathematical approaches to modeling financial crises have emphasized that there is often positive feedback between market participants' decisions (see strategic complementarity). Positive feedback implies that there may be dramatic changes in asset values in response to small changes in economic fundamentals. For example, some models of currency crises (including that of Paul Krugman) imply that a fixed exchange rate may be stable for a long period of time, but will collapse suddenly in an avalanche of currency sales in response to a sufficient deterioration of government finances or underlying economic conditions.

According to some theories, positive feedback implies that the economy can have more than one equilibrium. There may be an equilibrium in which market participants invest heavily in asset markets because they expect assets to be valuable, but there may be another equilibrium where participants flee asset markets because they expect others to flee too. This is the type of argument underlying Diamond and Dybvig's model of bank runs, in which savers withdraw their assets from the bank because they expect others to withdraw too. Likewise, in Obstfeld's model of currency crises, when economic conditions are neither too bad nor too good, there are two possible outcomes: speculators may or may not decide to attack the currency depending on what they expect other speculators to do.

Herding models and learning models

A variety of models have been developed in which asset values may spiral excessively up or down as investors learn from each other. In these models, asset purchases by a few agents encourage others to buy too, not because the true value of the asset increases when many buy (which is called "strategic complementarity"), but because investors come to believe the true asset value is high when they observe others buying.

In "herding" models, it is assumed that investors are fully rational, but only have partial information about the economy. In these models, when a few investors buy some type of asset, this reveals that they have some positive information about that asset, which increases the rational incentive of others to buy the asset too. Even though this is a fully rational decision, it may sometimes lead to mistakenly high asset values (implying, eventually, a crash) since the first investors may, by chance, have been mistaken.

In "adaptive learning" or "adaptive expectations" models, investors are assumed to be imperfectly rational, basing their reasoning only on recent experience. In such models, if the price of a given asset rises for some period of time, investors may begin to believe that its price always rises, which increases their tendency to buy and thus drives the price up further. Likewise, observing a few price decreases may give rise to a downward price spiral, so in models of this type large fluctuations in asset prices may occur. Agent-based models of financial markets often assume investors act on the basis of adaptive learning or adaptive expectations.

History

A noted survey of financial crises is ''This Time is Different: Eight Centuries of Financial Folly'' , by economists Carmen Reinhart and Kenneth Rogoff, who are regarded as among the foremost historians of financial crises. In this survey, they trace the history of financial crisis back to sovereign defaults – default on ''public'' debt, – which were the form of crisis prior to the 18th century and continue, then and now causing private bank failures; crises since the 18th century feature both public debt default and private debt default. Reinhart and Rogoff also class debasement of currency and hyperinflation as being forms of financial crisis, broadly speaking, because they lead to unilateral reduction (repudiation) of debt.

Prior to 19th century

Reinhart and Rogoff trace inflation (to reduce debt) to Dionysius of Syracuse, of the 4th century BCE, and begin their "eight centuries" in 1258; debasement of currency also occurred under the Roman empire and Byzantine empire.

Among the earliest crises Reinhart and Rogoff study is the 1340 default of England, due to setbacks in its war with France (the Hundred Years' War; see details). Further early sovereign defaults include seven defaults by imperial Spain, four under Philip II, three under his successors.

Other global and national financial mania since the 17th century include:

1637: Bursting of tulip mania^* in the Netherlands – while tulip mania is popularly reported as an example of a financial crisis, and was a speculative bubble, modern scholarship holds that its broader economic impact was limited to negligible, and that it did not precipitate a financial crisis.

1720: Bursting of South Sea Bubble (Great Britain) and Mississippi Bubble (France) – earliest of modern financial crises; in both cases the company assumed the national debt of the country (80–85% in Great Britain, 100% in France), and thereupon the bubble burst.

Crisis of 1772

Panic of 1792

Panic of 1796–1797

19th century

Danish state bankruptcy of 1813

Panic of 1819 – pervasive USA economic recession w/ bank failures; culmination of U.S.'s 1st boom-to-bust economic cycle

Panic of 1825 – pervasive British economic recession in which many British banks failed, & Bank of England nearly failed

Panic of 1837 – pervasive USA economic recession w/ bank failures; a 5 yr ''depression'' ensued

Panic of 1847 – a collapse of British financial markets associated with the end of the 1840s railroad boom.

Panic of 1857 – pervasive USA economic recession w/ bank failures

Panic of 1866 – the Overend Gurney crisis (primarily British)

Panic of 1873 – pervasive USA economic recession w/ bank failures, known then as the 5 yr ''Great Depression'' & now as the Long Depression

Panic of 1884

Panic of 1890 - general economic crisis in Brazil, Argentina and Uruguay due to the economic bubbles burst which recessive effects were felt throughout this decade

Panic of 1893 – a panic in the United States marked by the collapse of railroad overbuilding and shaky railroad financing which set off a series of bank failures

Australian banking crisis of 1893

Panic of 1896 – an acute economic depression in the United States precipitated by a drop in silver reserves and market concerns on the effects it would have on the gold standard

20th century

Panic of 1901 – limited to crashing of the New York Stock Exchange

Panic of 1907 – pervasive USA economic recession w/ bank failures

Panic of 1910–1911

1910 – Shanghai rubber stock market crisis

Wall Street Crash of 1929, followed by the Great Depression – the largest and most important economic depression in the 20th century

1973 – 1973 oil crisis – oil prices soared, causing the 1973–1974 stock market crash

Secondary banking crisis of 1973–1975 – United Kingdom

1980s – Latin American debt crisis – beginning in Mexico in 1982 with the Mexican Weekend

Bank stock crisis (Israel 1983)

1987 – Black Monday (1987) – the largest one-day percentage decline in stock market history

1989–91 – United States Savings & Loan crisis

1990 – Japanese asset price bubble collapsed

early 1990s – Scandinavian banking crisis: Swedish banking crisis, Finnish banking crisis of 1990s

1992–93 – Black Wednesday – speculative attacks on currencies in the European Exchange Rate Mechanism

1994–95 – 1994 economic crisis in Mexico – speculative attack and default on Mexican debt

1997–98 – 1997 Asian Financial Crisis – devaluations and banking crises across Asia

1998 Russian financial crisis

21st century

2000–2001 – Turkish Crises

2001 – Argentine Crises

2001 – Bursting of dot-com bubble – speculations concerning internet companies crashed

2007–10 – Financial crisis of 2007–2010, followed by the late 2000s recession and the 2010 European sovereign debt crisis

See also

Bailout

Flight-to-liquidity

Lender of last resort

Liquidity crisis

Macroprudential policy

Oil crisis

Real estate bubble

Specific:

2000s energy crisis

2007–2008 world food price crisis

''America's Great Depression''

Literature

General perspectives

Walter Bagehot (1873), ''Lombard Street: A Description of the Money Market''.

Charles P. Kindleberger and Robert Aliber (2005), ''Manias, Panics, and Crashes: A History of Financial Crises''(Palgrave Macmillan, 2005 ISBN 9781403936516).

Gernot Kohler and Emilio José Chaves (Editors) "Globalization: Critical Perspectives" Hauppauge, New York: Nova Science Publishers ISBN 1-59033-346-2. With contributions by Samir Amin, Christopher Chase Dunn, Andre Gunder Frank, Immanuel Wallerstein

Hyman P. Minsky (1986, 2008), ''Stabilizing an Unstable Economy''.

Banking crises

Franklin Allen and Douglas Gale (2000), 'Financial contagion'. ''Journal of Political Economy'' 108 (1), pp. 1–33.

Franklin Allen and Douglas Gale (2007), ''Understanding Financial Crises''.

Jean-Charles Rochet (2008), ''Why Are There So Many Banking Crises? The Politics and Policy of Bank Regulation''.

R. Glenn Hubbard, ed., (1991) ''Financial Markets and Financial Crises''.

Douglas Diamond and Philip Dybvig (1983), 'Bank runs, deposit insurance, and liquidity'. ''Journal of Political Economy'' 91 (3).

Luc Laeven and Fabian Valencia (2008), 'Systemic banking crises: a new database'. International Monetary Fund Working Paper 08/224.

Bubbles and crashes

Didier Sornette (2003), ''Why Stock Markets Crash'', Princeton University Press.

Robert J. Shiller (1999, 2006), ''Irrational Exuberance''.

Markus Brunnermeier (2008), 'Bubbles', ''New Palgrave Dictionary of Economics'', 2nd ed.

Markus K. Brunnermeier (2001), ''Asset Pricing under Asymmetric Information: Bubbles, Crashes, Technical Analysis, and Herding'', Oxford University Press. ISBN 0198296983.

International financial crises

Paul Krugman (1995), ''Currencies and Crises''.

Craig Burnside, Martin Eichenbaum, and Sergio Rebelo (2008), 'Currency crisis models', ''New Palgrave Dictionary of Economics'', 2nd ed.

Maurice Obstfeld (1996), 'Models of currency crises with self-fulfilling features'. ''European Economic Review'' 40.

Stephen Morris and Hyun Song Shin (1998), 'Unique equilibrium in a model of self-fulfilling currency attacks'. ''American Economic Review'' 88 (3).

Barry Eichengreen (2004), ''Capital Flows and Crises''.

Charles Goodhart and P. Delargy (1998), 'Financial crises: plus ça change, plus c'est la même chose'. ''International Finance'' 1 (2), pp. 261–87.

Jean Tirole (2002), ''Financial Crises, Liquidity, and the International Monetary System''.

Guillermo Calvo (2005), ''Emerging Capital Markets in Turmoil: Bad Luck or Bad Policy?''

Barry Eichengreen (2002), ''Financial Crises: And What to Do about Them''.

Charles Calomiris (1998), 'Blueprints for a new global financial architecture'.

The Great Depression and earlier banking crises

Milton Friedman and Anna Schwartz (1971), ''A Monetary History of the United States''.

Ben S. Bernanke (2000), ''Essays on the Great Depression''.

Robert F. Bruner (2007), ''The Panic of 1907. Lessons Learned from the Market's Perfect Storm''.

Recent international financial crises

Barry Eichengreen and Peter Lindert, eds., (1992), ''The International Debt Crisis in Historical Perspective''.

Lessons from the Asian financial crisis / edited by Richard Carney. New York, NY : Routledge, 2009. ISBN 9780415481908 (hardback) ISBN 0415481902 (hardback) ISBN 9780203884775 (ebook) ISBN 0203884779 (ebook)

Robertson, Justin, 1972– US-Asia economic relations : a political economy of crisis and the rise of new business actors / Justin Robertson. Abingdon, Oxon ; New York, NY : Routledge, 2008. ISBN 9780415469517 (hbk.) ISBN 9780203890523 (ebook)

2007–2010 financial crisis

Fengbo Zhang (2008): 1. Perspective on the United States Sub-prime Mortgage Crisis , 2. Accurately Forecasting Trends of the Financial Crisis , 3. Stop Arguing about Socialism versus Capitalism .

Robert J. Shiller (2008), ''The Subprime Solution: How Today's Global Financial Crisis Happened, and What to Do About It''. ISBN 0691139296.

JC Coffee, ‘What went wrong? An initial inquiry into the causes of the 2008 financial crisis’ (2009) 9(1) Journal of Corporate Law Studies 1

Fratianni M., Marchionne F. (2009), ''The Role of Banks in the Subprime Financial Crisis'' available on SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1383473

Markus Brunnermeier (2009), 'Deciphering the liquidity and credit crunch 2007–2008'. ''Journal of Economic Perspectives'' 23 (1), pp. 77–100.

Paul Krugman (2008), ''The Return of Depression Economics and the Crisis of 2008''. ISBN 0393071014.

"The myths about the economic crisis, the reformist left and economic democracy" by Takis Fotopoulos, The International Journal of Inclusive Democracy, vol 4, no 4, Oct. 2008.

Pezzuto, Ivo (2008). ''Miraculous Financial Engineering or Toxic Finance? The Genesis of the U.S. Subprime Mortgage Loans Crisis and its Consequences on the Global Financial Markets and Real Economy''. In this working paper dated October 7, 2008 Prof. Pezzuto has predicted the EU peripheral debt crisis. ISSN 1662-761X. available on SSRN: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1332784

Nitasha Kaul (2009), "The economics of turning people into things". ''Open Democracy'' 20 April, Available online http://www.opendemocracy.net/article/the-economics-of-turning-people-into-things

Funnell, Warwick N. In government we trust : market failure and the delusions of privatisation / Warwick Funnell, Robert Jupe and Jane Andrew. Sydney : University of New South Wales Press, 2009. ISBN 9780868409665 (pbk.)

Read, Colin, 1959– Global financial meltdown : how we can avoid the next economic crisis / Colin Read. New York : Palgrave Macmillan, c2009. ISBN 9780230222182

The American housing crisis / Susan Hunnicutt, book editor. Farmington Hills, Michigan : Greenhaven Press, c2009. ISBN 9780737743104 (hbk.) ISBN 9780737743098 (pbk.)

United States. Congress. House. Committee on the Judiciary. Subcommittee on Commercial and Administrative Law. Working families in financial crisis : medical debt and bankruptcy : hearing before the Subcommittee on Commercial and Administrative Law of the Committee on the Judiciary, House of Representatives, One Hundred Tenth Congress, first session, July 17, 2007. Washington : U.S. G.P.O. : For sale by the Supt. of Docs., U.S. G.P.O., 2008. 277 p. : ISBN 9780160813764 ISBN 016081376X http://purl.access.gpo.gov/GPO/LPS99198

Davis Polk Financial Crisis Manual

Kolb, Robert (2010). “Lessons from the Financial Crisis: Causes, Consequences, and Our Economic Future” (Robert W. Kolb Series), Publisher: Wiley ISBN 978-0470561775

Dwyer, Gerald P. and Paula Tkac. 2009. "The Financial Crisis of 2008 in Fixed-income Markets" Journal of International Money and Finance 28 (December 2009), 1293–1316, available in working paper version at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1464891.

Paolo Tasca and Stefano Battiston, 2011. "Diversification and Financial Stability" CCSS 11-001 (30 April 2011), available in working paper version at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1878596.

Notes

External links

NYU Stern on Finance – Blog explaining the Financial Crisis (follow link to research blog run by Stern faculty members which deals with financial economics)

Crisis Talk - World Bank blog offering information on the unfolding crisis

Financial Crises: Lessons from History. BBC.

Rescuing our Jobs and Savings: What G7/8 Leaders Can Do – policy proposals from leading economists, sponsored by Centre for Economic Policy Research at VOXEU.org.

Dossier on 2008 financial crisis by Radio France International's English-language service

OECD response to the economic crisis. OECD.

Academic paper about the effect of the financial crisis on the venture capital industry .

The Global Financial Crisis, Developing Countries and Policy Responses Institute of Development Studies (IDS) In Focus Policy Briefing 7.1 March 2009

Davis Polk Financial Crisis Manual

Category:Crisis Category:Economic problems

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Coordinates	52°24′29″N1°30′38″N
Name	Niall Ferguson
Birth date	April 18, 1964
Birth place	Glasgow, Scotland
Nationality	British
Fields	Financial and economic history
Workplaces	Harvard University Harvard Business SchoolLondon School of Economics
Alma mater	Magdalen College, Oxford
Known for	Counterfactual historyEconomic historyHistory of empire and imperialism
Influences	A J P Taylor, Kenneth Clark, Adam Smith, Karl Marx, John Maynard Keynes
Religion	Atheist
Signature
Footnotes	}}

Niall Campbell Douglas Ferguson (born April 18, 1964) is a British historian who specialises in financial and economic history, particularly hyperinflation and the bond markets, as well as the history of colonialism.

Ferguson, who was born in Glasgow, is the Laurence A. Tisch Professor of History at Harvard University as well as William Ziegler Professor of Business Administration at Harvard Business School, and also currently the Philippe Roman Chair in History and International Affairs at the London School of Economics. He was educated at the private Glasgow Academy in Scotland, and at Magdalen College, Oxford. During the 2008 U.S. presidential election, Ferguson advised Senator John McCain's campaign.

In the UK, Ferguson is probably best known as the author of ''Empire: How Britain Made the Modern World''. In 2008, Ferguson published ''The Ascent of Money: A Financial History of the World'', which he also presented as a Channel 4 television series. Both at Harvard College and at LSE, Ferguson teaches a course entitled "Western Ascendancy: The Mainsprings of Global Power from 1600 to the Present."

Early life

Ferguson was born the son of a doctor father and a physics teacher mother in Glasgow on April 18th 1964, and lived for a time near Ibrox Park. He attended The Glasgow Academy.

Ferguson cites his father as instilling in him a strong sense of self-discipline and of the moral value of work, whilst his mother encouraged his creative side. His journalist maternal grandfather encouraged him to write. Unable to decide on studying an English or a History degree at university, Ferguson cites his reading of War and Peace as persuading him towards History. Of late 1970s Glasgow, Ferguson describes "the main industries" of the city as "sectarianism and strike action".

University of Oxford

Ferguson received a Demyship (half-scholarship) at Magdalen College, Oxford, graduating with a first-class honours degree in History in 1985. He became a Thatcherite by 1982, identifying the position with "the Sex Pistols' position in 1977: it was a rebellion against the stuffy corporatism of the 70s." Whilst at university "He was very much a Scot on the make...Niall was a witty, belligerent bloke who seemed to have come from an entirely different planet." according to Simon Winder. Ferguson has stated that "I was surrounded by insufferable Etonians with fake Cockney accents who imagined themselves to be working-class heroes in solidarity with the striking miners. It wasn't long before it became clear that the really funny and interesting people on campus were Thatcherites."

Rachel Johnson has said of Ferguson at the time: :''He was attractive. He was clever. And I still remember him making me sob with laughter by describing how a man feels if he succeeds in bringing a woman to orgasm (like Jesse Owens at the Olympic stadium in Berlin, he said, raising his arms aloft).''

Johnson commisioned Ferguson to write an essay for a collection: :''Ferguson's piece was one of the first to come in. I can't remember much about it, but it wasn't quite the ticket. I remember sending him a photocopied letter that I was sending to all the contributors, with suggestions, pertaining to his essay, at the bottom. I found his reply in my pigeonhole, a few days later. "Dear Rachel Johnson," it read. "F--- off. Yours, Niall Ferguson." I assumed that he wanted nothing to do with the book again, so I re-commissioned the piece.''

Regarding slights and criticism, Ferguson has stated: "Nobody should ever imagine that they can do that kind of thing to me with impunity. Life is long, and revenge is a dish that tastes best cold. I'm very unforgiving."

Ferguson thus went on to attack Johnson's collection of essays (minus his own contribution) in a newspaper review.

At Oxford, Ferguson improved his German by reading Nietzsche whilst drinking Guinness in the pub with Norman Stone.

Career

Academic career

1983-1986 B.A History Magdalen College, Oxford.

1987–88 Hanseatic Scholar, Hamburg and Berlin

1989–90 Research Fellow, Christ’s College, University of Cambridge

1990–92 Official Fellow and Lecturer, Peterhouse, University of Cambridge

1992–2000 Fellow and Tutor in Modern History, Jesus College, University of Oxford

2000–02 Professor of Political and Financial History, University of Oxford

2002–04 John Herzog Professor in Financial History at Stern School of Business, New York University

2004, continuing. Laurence A. Tisch Professor of History, Harvard University and William Ziegler Professor of Business Administration at the Harvard Business School.

2010, continuing. Philippe Roman Chair in History and International Affairs at the London School of Economics, located within LSE IDEAS, beginning in 2010.

Ferguson is a Senior Research Fellow of Jesus College, Oxford University and a Senior Fellow of the Hoover Institution, Stanford University. He is a resident faculty member of the Minda de Gunzburg Center for European Studies, and an advisory fellow of the Barsanti Military History Center at the University of North Texas.

In May 2010 he announced that Education Secretary Michael Gove in the U.K's newly elected Conservative/Lib Dem government had invited him to advise on the development of a new history syllabus—"history as a connected narrative"— for schools in England and Wales. In June 2011 it was announced that he would join the professoriate of New College of the Humanities, a private college in London.

Business career

In 2007, Ferguson was appointed as an Investment Management Consultant by GLG Partners, focusing on geopolitical risk as well as current structural issues in economic behaviour relating to investment decisions. GLG is a UK-based hedge fund management firm headed by Noam Gottesman.

Career as commentator

In October 2007, Niall Ferguson left ''The Sunday Telegraph'' to join the ''Financial Times'', where he is now a contributing editor. He also writes for ''Newsweek''.

Ferguson has often described the European Union as a disaster waiting to happen, and has criticised President Vladimir Putin of Russia for authoritarianism. In Ferguson's view, certain of Putin's policies, if they continue, may stand to lead Russia to catastrophes equivalent to those that befell Germany during the Nazi era.

Subject matter

World War I

In 1998 Ferguson published the critically acclaimed ''The Pity of War: Explaining World War One'', which with the help of research assistants he was able to write in just five months. This is an analytic account of what Ferguson considered to be the ten great myths of the Great War. The book generated much controversy, particularly Ferguson's suggestion that it might have proved more beneficial for Europe if Britain had stayed out of the First World War in 1914, thereby allowing Germany to win. Ferguson has argued that the British decision to intervene was what stopped a German victory in 1914–15. Furthermore, Ferguson expressed disagreement with the ''Sonderweg'' interpretation of German history championed by some German historians such as Fritz Fischer, Hans-Ulrich Wehler, Hans Mommsen and Wolfgang Mommsen, who argued that the German Empire deliberately started an aggressive war in 1914 and that the Second Reich was little more than a dress rehearsal for the Third Reich. Likewise, Ferguson has often attacked the work of the German historian Michael Stürmer, who argued that it was Germany's geographical situation in Central Europe that determined the course of German history.

On the contrary, Ferguson maintained that Germany waged a preventive war in 1914, a war largely forced on the Germans by reckless and irresponsible British diplomacy. In particular, Ferguson accused the British Foreign Secretary Sir Edward Grey of maintaining an ambiguous attitude to the question of whether Britain would enter the war or not, and thus confusing Berlin over just what was the British attitude towards the question of intervention in the war. Ferguson accused London of unnecessarily allowing a regional war in Europe to escalate into a world war. Moreover, Ferguson denied that the origins of National Socialism could be traced back to Imperial Germany; instead Ferguson asserted the origins of Nazism could only be traced back to the First World War and its aftermath.

The “myths” of World War I that Ferguson attacked, with his counter-arguments in parentheticals, are: That Germany was a highly militarist country before 1914 (Ferguson claims Germany was Europe’s most anti-militarist country) That naval challenges mounted by Germany drove Britain into informal alliances with France and Russia before 1914 (Ferguson claims the British were driven into alliances with France and Russia as a form of appeasement due to the strength of those nations, and an Anglo-German alliance failed to materialize due to German weakness) That British foreign policy was driven by legitimate fears of Germany (Ferguson claims Germany posed no threat to Britain before 1914, and that all British fears of Germany were due to irrational anti-German prejudices) That the pre-1914 arms race was consuming ever larger portions of national budgets at an unsustainable rate (Ferguson claims that the only limitations on more military spending before 1914 were political, not economic) That World War I was, as Fritz Fischer claimed, a war of aggression on part of Germany that necessitated British involvement to stop Germany from conquering Europe (Ferguson claims that if Germany had been victorious, something like the European Union would have been created in 1914, and that it would have been for the best if Britain had chosen to opt out of war in 1914) That most people were happy with the outbreak of war in 1914 (Ferguson claims that most Europeans were saddened by the coming of war) That propaganda was successful in making men wish to fight (Ferguson argues the opposite) That the Allies made the best use of their economic resources (Ferguson argues that the Allies “squandered” their economic resources) That the British and the French had the better armies (Ferguson claims the German Army was superior) That the Allies were more efficient at killing Germans (Ferguson argues that the Germans were more efficient at killing the Allies) That most soldiers hated fighting in the war (Ferguson argues most soldiers fought more or less willingly) That the British treated German prisoners of war well (Ferguson argues the British routinely killed German POWS) That Germany was faced with reparations after 1921 that could not be paid except at ruinous economic cost (Ferguson argues that Germany could easily have paid reparations had there been the political will)

Another controversial aspect of the ''Pity of War'' was Ferguson's use of counterfactual history. Ferguson presented a counter-factual version of Europe under Imperial German domination that was peaceful, prosperous, democratic and without ideologies like Communism and fascism. In Ferguson's view, had Germany won World War I, then the lives of millions would have been saved, something like the European Union would have been founded in 1914, and Britain would have remained an empire and the world's dominant financial power. ''The House of Rothschild: Volume 2: The World's Banker: 1849–1999'' The books won the Wadsworth Prize for Business History and were also short-listed for the Jewish Quarterly-Wingate Literary Award and the American National Jewish Book Award.

Counterfactual history

Ferguson is an academic champion of counterfactual history, and edited a collection of essays exploring the subject titled ''Virtual History: Alternatives and Counterfactuals'' (1997). Ferguson likes to imagine alternative outcomes as a way of stressing the contingent aspects of history. For Ferguson, great forces don't make history; individuals do and nothing is predetermined. Thus, for Ferguson there are no paths in history that will determine how things will work out. The world is neither progressing nor regressing; only the actions of individuals will determine whether we live in a better or worse world. His championing of the method has been controversial within the field.

In a recent review of Ferguson's book Civilisation, Noel Malcolm who is Senior Research Fellow in History at All Souls College, Oxford University stated that: "Students may find this an intriguing introduction to a wide range of human history; but they will get an odd idea of how historical argument is to be conducted, if they learn it from this book."

Henry Kissinger

In 2003, former United States Secretary of State Henry Kissinger provided Ferguson with access to his White House diaries, letters, and archives for what Ferguson calls a "warts-and-all biography" of Kissinger.

Colonialism

Ferguson is critical of what he calls the "self-flagellation" that he says characterizes modern European thought.

"The moral simplification urge is an extraordinarily powerful one, especially in this country, where imperial guilt can lead to self-flagellation," he told a reporter. "And it leads to very simplistic judgments. The rulers of western Africa prior to the European empires were not running some kind of scout camp. They were engaged in the slave trade. They showed zero sign of developing the country's economic resources. Did Senegal ultimately benefit from French rule? Yes, it's clear. And the counterfactual idea that somehow the indigenous rulers would have been more successful in economic development doesn't have any credibility at all."

Richard Drayton, Professor of Colonial History at the University of London, has stated that it is correct to associate "Ferguson with an attempt to "rehabilitate empire" in the service of contemporary great power interests."

Islam and Eurabia

Matthew Carr wrote in ''Race & Class'' that "Niall Ferguson, the conservative English historian and enthusiastic advocate of a new American empire, has also embraced the Eurabian idea in a widely reproduced article entitled ‘Eurabia?’, in which he laments the ‘de-Christianization of Europe’ and its culture of secularism that leaves the continent ‘weak in the face of fanaticism’." Carr adds that "Ferguson sees the recent establishment of a department of Islamic studies in his Oxford college as another symptom of the ‘the creeping Islamicization of a decadent Christendom’" and that in a 2004 lecture at the American Enterprise Institute entitled ‘The end of Europe?’, "Ferguson struck a similarly Spenglerian note, conjuring the term ‘impire’ to depict a process in which a ‘political entity, instead of expanding outwards towards its periphery, exporting power, implodes – when the energies come from outside into that entity’. In Ferguson’s opinion, this process was already under way in a decadent ‘post-Christian’ Europe that was drifting inexorably towards the dark denouement of a vanquished civilisation and the fatal embrace of Islam."

Iraq war

Ferguson supported the Iraq war and isn't necessarily opposed to future incursions in the world.

"It's all very well for us to sit here in the west with our high incomes and cushy lives, and say it's immoral to violate the sovereignty of another state. But if the effect of that is to bring people in that country economic and political freedom, to raise their standard of living, to increase their life expectancy, then don't rule it out."

Economic policy

In its August 15, 2005 edition, ''The New Republic'' published "The New New Deal", an essay by Ferguson and Laurence J. Kotlikoff, a Professor of Economics at Boston University. The two scholars called for the following changes to the American government's fiscal and income security policies:

Replacing the personal income tax, corporate income tax, Federal Insurance Contributions Act tax (FICA), estate tax, and gift tax with a 33% Federal Retail Sales Tax (FRST), plus a monthly rebate, amounting to the FRST a household with similar demographics would pay if its income were at the poverty line. See also: FairTax;

Replacing the Old Age benefits paid under Social Security with a Personal Security System, consisting of private retirement accounts for all citizens, plus a government benefit payable to those whose savings were insufficient to afford a minimum retirement income;

Replacing Medicare and Medicaid with a Medical Security System that would provide health insurance vouchers to all citizens, the value of which would be determined by one's health;

Cutting federal discretionary spending by 20%.

A recent ''New Republic'' piece with Harvard's Samuel J. Abrams explored attitudes towards immigration in Europe and the United States.

Criticisms

As scholar

Fellow academics have questioned Ferguson's commitment to scholarship. Benjamin Wallace-Wells, an editor of ''The Washington Monthly'', comments that

"''The House of Rothschild'' remains Ferguson's only major work to have received prizes and wide acclaim from other historians. Research restrains sweeping, absolute claims: Rothschild is the last book Ferguson wrote for which he did original archival work, and his detailed knowledge of his subject meant that his arguments for it couldn't be too grand."

John Lewis Gaddis, a renowned Cold War era historian, characterized Ferguson as having unrivaled "range, productivity and visibility" at the same time as criticising his work as being "unpersuasive". Gaddis goes on to state that "several of Ferguson's claims, moreover, are contradictory".

Marxist historian Eric Hobsbawm has praised Ferguson as an excellent historian. However, he has also criticised Ferguson, saying, on the BBC Radio programme "Start the Week", that he was a "nostalgist for empire". Ferguson responded to the above criticisms in a Washington Post "Live Discussions" online forum in 2006.

Exchange with Krugman

In May 2009, Ferguson became involved in a high-profile exchange of views with economist Paul Krugman (then the most recent Economics Nobel Prize winner) arising out of a panel discussion hosted by Pen/New York Review on April 30, 2009, regarding the U.S. economy. Ferguson contended that the Obama administration's policies are simultaneously Keynesian and monetarist, in an incoherent mix, and specifically that the government's issuance of a multitude of new bonds will cause an increase in interest rates. Krugman then extended the criticism to China and the European Union, as both pursued policies more in accord with Ferguson's stance than Krugman's.

Krugman has argued that Ferguson's view is "resurrecting 75-year old fallacies" and full of "basic errors". He has also stated that Ferguson is a "poseur" who "...hasn't bothered to understand the basics, relying on snide comments and surface cleverness to convey the impression of wisdom. It's all style, no comprehension of substance." J. Bradford DeLong of Berkeley agreed with Krugman, concluding "Niall Ferguson does indeed know a lot less than economists knew in the 1920s".

Ferguson criticized Krugman in his December 7, 2009 Newsweek cover story, "An Empire at Risk", claiming that Krugman's partisanship caused him to change his position between 2003 and 2004. Ferguson wrote:

Now, who said the following? 'My prediction is that politicians will eventually be tempted to resolve the [fiscal] crisis the way irresponsible governments usually do: by printing money, both to pay current bills and to inflate away debt. And as that temptation becomes obvious, interest rates will soar.' Seems pretty reasonable to me. The surprising thing is that this was none other than Paul Krugman, the high priest of Keynesianism, writing back in March 2003. A year and a half later he was comparing the U.S. deficit with Argentina's (at a time when it was 4.5 percent of GDP). Has the economic situation really changed so drastically that now the same Krugman believes it was 'deficits that saved us,' and wants to see an even larger deficit next year? Perhaps. But it might just be that the party in power has changed.

Personal life

He married journalist Susan Douglas, whom he met in 1987 when she was his editor at the ''Daily Mail''. They have three children. They separated in 2010 and began divorce proceedings in 2011.

His younger sister is a professor at the University of Pennsylvania.

Ferguson was the inspiration for Alan Bennett's play ''The History Boys'', particularly the character of Irwin, a history teacher who urges his pupils to find a counterintuitive angle, and goes on to become a television historian.

Ferguson rises at 6am every day.

Ferguson's self confessed workaholism has placed strains on his personal relations in the past. Ferguson has commented that: :''from 2002, the combination of making TV programmes and teaching at Harvard took me away from my children too much. You don't get those years back. You have to ask yourself: "Was it a smart decision to do those things?" I think the success I have enjoyed since then has been bought at a significant price. In hindsight, there would have been a bunch of things that I would have said no to.''

Relationship with Ayaan Hirsi Ali

In February 2010 the ''Daily Mail'' reported that, following a series of affairs, Ferguson had left his wife for former Dutch MP and feminist critic of Islam Ayaan Hirsi Ali. A similar story in ''The Independent'' was followed by the publication of a correction, noting that Ferguson's marriage had broken down before he met Ali. As of June 2011, Ali is reportedly five months pregnant with Ferguson's child. Ferguson dedicated his book ''Civilization'' to "Ayaan". In an interview with ''The Guardian'', Ferguson spoke about his love for Ali, who, he writes in the preface, "understands better than anyone I know what Western civilisation really means – and what it still has to offer the world".

Ali, he continued,

"grew up in the Muslim world, was born in Somalia, spent time in Saudi Arabia, was a fundamentalist as a teenager. Her journey from the world of her childhood and family to where she is today is an odyssey that's extremely hard for you or I to imagine. To see and hear how she understands western philosophy, how she understands the great thinkers of the Enlightenment, of the 19th-century liberal era, is a great privilege, because she sees it with a clarity and freshness of perspective that's really hard for us to match. So much of liberalism in its classical sense is taken for granted in the west today and even disrespected. We take freedom for granted, and because of this we don't understand how incredibly vulnerable it is."

See also

Anglosphere

Chimerica

Bibliography

''The Cash Nexus''

In his 2001 book, ''The Cash Nexus'', which he wrote following a year as Houblon-Norman Fellow at the Bank of England, Ferguson argues that the popular saying, "money makes the world go 'round", is wrong; instead he presented a case for human actions in history motivated by far more than just economic concerns.

''Colossus'' and ''Empire''

In his books ''Colossus'' and ''Empire'', Ferguson presents a nuanced and partially apologetic view of the British Empire and in conclusion proposes that the modern policies of the United Kingdom and the United States, in taking a more active role in resolving conflict arising from the failure of states, are analogous to the 'Anglicization' policies adopted by the British Empire throughout the 19th century. In ''Colossus'', Ferguson explores the United States' hegemony in foreign affairs and its future role in the world.

''War of the World''

The ''War of the World'', published in 2006, had been ten years in the making and is a comprehensive analysis of the savagery of the 20th century. Ferguson shows how a combination of economic volatility, decaying empires, psychopathic dictators, and racially/ethnically motivated (and institutionalized) violence resulted in the wars and the genocides of what he calls "History's Age of Hatred". The New York Times Book Review named ''War of the World'' one of the 100 Notable Books of the Year in 2006, while the ''International Herald Tribune'' called it "one of the most intriguing attempts by an historian to explain man's inhumanity to man". Ferguson addresses the paradox that, though the 20th century was "so bloody", it was also "a time of unparalleled [economic] progress". As with his earlier work ''Empire'', ''War of the World'' was accompanied by a Channel 4 television series presented by Ferguson.

''The Ascent of Money''

Published in 2008, ''The Ascent of Money'' examines the long history of money, credit, and banking. In it he predicts a financial crisis as a result of the world economy and in particular the United States using too much credit. Specifically he cites the China–America dynamic which he refers to as Chimerica where an Asian "savings glut" helped create the subprime mortgage crisis with an influx of easy money.

''Civilization''

Published in 2011, ''Civilization: The West and the Rest'' examines what Ferguson calls the most "interesting question" of our day: "Why, beginning around 1500, did a few small polities on the western end of the Eurasian landmass come to dominate the rest of the world?" He attributes this divergence to the West's development of six "killer apps" largely missing elsewhere in the world - "competition, science, democracy, medicine, consumerism and the work ethic". A related documentary ''Civilization: Is the West History?'' was broadcast as a six part series on Channel 4 in March and April of 2011.

Publications

(also a Channel 4 series)

As Contributor

“Europa nervosa”, in Nader Mousavizadeh (ed.), The Black Book of Bosnia (New Republic/Basic Books, 1996), pp. 127–32

“The German inter-war economy: Political choice versus economic determinism” in Mary Fulbrook (ed.), German History since 1800(Arnold, 1997), pp. 258–278

“The balance of payments question: Versailles and after” in Manfred F. Boemeke, Gerald D. Feldman and Elisabeth Glaser (eds.), The Treaty of Versailles: A Reassessment after 75 Years (Cambridge University Press, 1998), pp. 401–440

“‘The Caucasian Royal Family’: The Rothschilds in national contexts” in R. Liedtke (ed.), ‘Two Nations’: The Historical Experience of British and German Jews in Comparison (J.C.B. Mohr, 1999)

“Academics and the Press”, in Stephen Glover (ed.), Secrets of the Press: Journalists on Journalism (Penguin, 1999), pp. 206–220

“Metternich and the Rothschilds: A reappraisal” in Andrea Hamel and Edward Timms (eds.), Progress and Emancipation in the Age of Metternich: Jews and Modernisation in Austria and Germany, 1815–1848 (Edwin Mellen Press, 1999), pp. 295–325

“The European economy, 1815–1914” in T.C.W. Blanning (ed.), The Short Oxford History of Europe: The Nineteenth Century (Oxford University Press, 2000), pp. 78–125

“How (not) to pay for the war: Traditional finance and total war” in Roger Chickering and Stig Förster (eds.), Great War, Total War: Combat and Mobilization on the Western Front (Cambridge University Press, 2000), pp. 409–34

“Introduction” in Frederic Manning , Middle Parts of Fortune (Penguin, 2000), pp. vii-xviii

“Clashing civilizations or mad mullahs: The United States between informal and formal empire” in Strobe Talbott (ed.), The Age of Terror (Basic Books, 2001), pp. 113–41

“Public debt as a post-war problem: The German experience after 1918 in comparative perspective” in Mark Roseman (ed.), Three Post-War Eras in Comparison: Western Europe 1918-1945-1989 (Palgrave-Macmillan, 2002), pp. 99–119

“Das Haus Sachsen-Coburg und die europäische Politik des 19. Jahrhunderts”, in Rainer von Hessen (ed.), Victoria Kaiserin Friedrich (1840–1901): Mission und Schicksal einer englischen Prinzessin in Deutschland (Campus Verlag, 2002), pp. 27–39

“Max Warburg and German politics: The limits of financial power in Wilhelmine Germany”, in Geoff Eley and James Retallack (eds.), Wilhelminism and Its Legacies: German Modernities, Imperialism and the Meaning of Reform, 1890-1930 (Berghahn Books, 2003), pp. 185–201

“Introduction”, The Death of the Past by J. H. Plumb (Palgrave Macmillan, 2003), pp. xxi-xlii

“Globalization in historical perspective: The political dimension”, in Michael D. Bordo, Alan M. Taylor and Jeffrey G. Williamson (eds.), Globalisation in Historical Perspective (National Bureau of Economic Research Conference Report) (University of Chicago Press, 2003)

“Introduction to Tzvetan Todorov” in Nicholas Owen (ed.), Human Rights, Human Wrongs: Oxford Amnesty Lectures (Amnesty International, 2003)

“The City of London and British imperialism: New light on an old question”, in Youssef Cassis and Eric Bussière (eds.), London and Paris as International Financial Centres in the Twentieth Century (Oxford University Press, 2004), pp. 57–77

“A bolt from the blue? The City of London and the outbreak of the First World War”, in Wm. Roger Louis (ed.), Yet More Adventures with Britainnia: Personalities, Politics and Culture in Britain (I.B. Tauris, 2005), pp. 133–145

“The first ‘Eurobonds’: The Rothschilds and the financing of the Holy Alliance, 1818–1822”, in William N. Goetzmann and K. Geert Rouwenhorst (eds.), The Origins of Value: The Financial Innovations that Created Modern Capital Markets (Oxford University Press, 2005), pp. 311–323

“Prisoner taking and prisoner killing in the age of total war”, in George Kassemiris (ed.), The Barbarization of Warfare (New York University Press, 2006), pp. 126–158

“The Second World War as an economic disaster”, in Michael Oliver (ed.), Economic Disasters of the Twentieth Century (Edward Elgar, 2007), pp. 83–132

“The Problem of Conjecture: American Strategy after the Bush Doctrine”, in Melvyn Leffler and Jeff Legro (eds.), To Lead the World: American Strategy After the Bush Doctrine (Oxford University Press, 2008)

Television documentaries

Empire (2003)

American Colossus (2004)

The War of the World (2006)

The Ascent of Money (2008)

Civilization: Is The West History? (2011)

References

Notes

General references

External links

niallferguson.org, Ferguson's official website

RSA Vision webcast - Niall Ferguson on "The Ascent of Money"

Audio: Niall Ferguson in conversation on the BBC World Service discussion programme ''The Forum''

Hans Koning's Review of 'The Pity of War' (from The Nation)

A Banker to the Rescue, Martin Rubin, The Wall Street Journal, 26 June 2010

"Yesterday's Banker" Liaquat Ahamed, ''The New York Times'', 30 July 2010

Historian vs. Futurist on Human Progress discussion with Stewart Brand and Peter Schwartz (futurist) at The Long Now Foundation, May 2008

On the Edge of Chaos discussion of his work at Centre for Independent Studies, July 2010

'The Sun Sets in the West', review of ''Civilization'' in the ''Oxonian Review''

An Interview with Niall Ferguson, ''Oxonian Review'', 9 April 2011

Category:1964 births Category:Living people Category:Alumni of Christ's College, Cambridge Category:Alumni of Magdalen College, Oxford Category:British foreign policy writers Category:Fellows of Jesus College, Oxford Category:Fellows of Peterhouse, Cambridge Category:Harvard Business School faculty Category:Harvard University faculty Category:New York University faculty Category:People from Glasgow Category:Scottish historians Category:World War I historians

de:Niall Ferguson es:Niall Ferguson fr:Niall Ferguson ko:니얼 퍼거슨 hr:Niall Ferguson it:Niall Ferguson he:ניל פרגוסון ja:ニーアル・ファーガソン no:Niall Ferguson pl:Niall Ferguson fi:Niall Ferguson

Coordinates	52°24′29″N1°30′38″N
name	Martin Wolf
birth date	1946
birth place	London
occupation	Journalist
citizenship	British
alma mater	University of Oxford
subject	Economics
spouse	Alison Wolf
awards	}}

Martin Wolf, CBE (born 1946) is a British journalist, widely considered to be one of the world's most influential writers on economics. He is associate editor and chief economics commentator at the ''Financial Times''.

Early life

Wolf was born in London, 1946. His father Edmund was an Austrian Jewish playwright who escaped from Vienna to England before World War II. Edmund met Wolf's mother in London, a Dutch Jew who had lost nearly thirty close relatives in the Holocaust. Wolf recalls that his background left him wary of political extremes and encouraged his interest in economics, as he felt economic policy mistakes were one of the root causes of WWII. Wolf was educated at University College School and in 1967 entered Corpus Christi College at Oxford University for his undergraduate studies. He initially studied Classics before starting the Philosophy, Politics and Economics Course As a graduate student Wolf moved on to Nuffield College, also at Oxford, which he left with a master of philosophy degree in economics in 1971. Wolf has said that he never pursued a PhD because "I didn't want to become an academic". Wolf was an active supporter of the Labour Party (UK) until the early 1970s.

Career

In 1971 Wolf joined the World Bank's young professionals programme, becoming a senior economist in 1974. By the start of the eighties, Wolf was deeply disillusioned with the Bank's policies undertaken under the direction of Robert McNamara - the Bank had been strongly pushing for increased capital flows to developing countries, which had resulted in many of them suffering debt crises by the early 1980s. Seeing the results of misjudged intervention by global authorities, and also influenced from the early 70s by various works critical of government intervention such as Friedrich Hayek's The Road to Serfdom, Wolf shifted his views towards the right and the free market. Wolf left the World Bank in 1981, to become Director of Studies at the ''Trade Policy Research Centre'', in London. He joined the ''Financial Times'' in 1987, where he has been associate editor since 1990 and chief economics commentator since 1996. Up until the late 2000s, Wolf was an influential advocate of globalization and the free market. In addition to his journalism and participation in various international forums, Wolf had also attempted to influence opinion with his books; he has stated his 2004 book ''Why Globalization Works'' was intended to be a persuasive work rather than an academic study. By 2008 Wolf had become disillusioned with theories promoting what he came to see as excessive reliance on the private sector. While remaining a pragmatist free of binding commitments to any one ideology, Wolf's views partially shifted away from free market thinking back to the Keynesian ideas he had been taught as a youth. He became one of the more influential drivers of the 2008–2009 Keynesian resurgence, where in late 2008 and early 2009 he used his platform on the ''Financial Times'' to advocate a massive fiscal and monetary response to the financial crisis of 2007–2010. According to Julia Loffe writing in 2009 for The New Republic, he was "arguably the most widely trusted pundit" of the crisis. Wolf is a supporter of Land value taxation.

Awards and recognition

Wolf was joint winner of the Wincott Foundation senior prize for excellence in financial journalism in both 1989 and 1997. He won the RTZ David Watt memorial prize in 1994. In 2000 Wolf was awarded the CBE (Commander of the British Empire). He was awarded the honorary degree of Doctor of Letters, ''honoris causa'', by the University of Nottingham in 2006, and was made Doctor of Science (Economics) of University of London, ''honoris causa'', by the London School of Economics in the same year. Wolf is a regular participant in the annual Bilderberg meetings of politicians and bankers. He is visiting fellow of Nuffield College, Oxford, a Special Professor at the University of Nottingham and an honorary fellow of the Oxford Institute for Economic Policy. He has been a forum fellow at the annual meeting of the World Economic Forum in Davos since 1999.

Wolf is regarded as "staggeringly well connected" within elite financial circles. His friends include leading financiers such as Mohamed A. El-Erian; politicians such as Manmohan Singh, Timothy Geithner and Ed Balls; many leading economists; central bankers such as Mervyn King - according to Wolf he knows all significant central bankers. Despite Wolf's close connections with the powerful, he is trusted for his independence and is known to criticise initiatives promoted by his friends when he considers it in the public interests. Wolf is widely regarded as one of the most influential economics journalists in the world. Lawrence H. Summers has called him "the world's preeminent financial journalist" Mohamed A. El-Erian, CEO of the world's largest bond investor, said Wolf is "by far, the most influential economic columnist out there." Prospect magazine described him as "the Anglosphere’s most influential finance journalist" While economist Kenneth Rogoff has said "He really is the premier financial and economics writer in the world."

Bibliography

''The Resistible Appeal of Fortress Europe'' (AEI Press 1994) ISBN 978-0844738710

''Why Globalization Works'' (Yale University Press 2004) ISBN 978-0-300-10252-9

''Fixing Global Finance'' (The Johns Hopkins University Press 2008) ISBN 978-0-8018-9048-2

References

External links

Wolf's column at the Financial Times

Video: UC Berkeley Events, Conversations with History - Martin Wolf, February 2009

Category:English journalists Category:British Jews Category:British economics writers Category:Living people Category:1946 births Category:Academics of the University of Nottingham Category:Financial Times people

cs:Martin Wolf eo:Martin Wolf fr:Martin Wolf rw:Martin Wolf ru:Вулф, Мартин

Coordinates	52°24′29″N1°30′38″N
Name	Gerald Celente
Birth date	November 29, 1946
Birth place	The Bronx, New York City, New York, U.S.
Occupation	Trend forecaster
Nationality	American
Ethnicity	White
Parents	}}

Gerald Celente (born November 29, 1946) is an American trend forecaster, publisher of the ''Trends Journal'', business consultant and author who makes predictions about the global financial markets and other events of historical importance. Celente has described himself as a "political atheist" and "citizen of the world". He has appeared as a guest on television news shows such as ''The Oprah Winfrey Show'', ''The Today Show'', ''Good Morning America'', ''CBS Morning News'', ''The Glenn Beck Show'', ''NBC Nightly News'', ''The Alex Jones Show'' and ''Russia Today''.''

Background

Celente was born in The Bronx, New York City, New York. He had early political experience running a mayoral campaign in Yonkers, New York and served as executive assistant to the secretary of the New York State Senate, which Celente called the worst job he ever had. From 1973 to 1979 Celente traveled between Chicago and Washington D.C. as a government affairs specialist. In 1980 Celente founded The Trends Research Institute (at first called the Socio-Economic Research Institute of America), now located in Kingston, New York, publisher of the ''Trends Journal'' which forecasts and analyzes business, socioeconomic, political, and other trends.

Forecasting

His forecasts since 1993 have included predictions about terrorism, economic collapses and war. More recent forecasts involve fascism in the United States, food riots and tax revolts. Celente has long predicted global anti-Americanism, a failing economy and immigration woes in the U.S. In December 2007 Celente wrote, "Failing banks, busted brokerages, toppled corporate giants, bankrupt cities, states in default, foreign creditors cashing out of US securities ... whatever the spark, the stage is set for panic in the streets" and "Just as the Twin Towers collapsed from the top down, so too will the U.S. economy ... when the giant firms fall, they’ll crush the man on the street." He has also predicted tax revolts. In November 2008 Celente appeared on Fox Business Network and predicted economic depression, tax rebellions and food riots in the United States by 2012. Celente also predicted an "economic 9/11" and a "panic of 2008."

In 2009 Celente predicted turmoil which he described as "Obamageddon" and he was a popular guest on conservative cable-TV shows such as ''Fox News Sunday'' and Glenn Beck's television program. In April 2009 Celente wrote, "Wall Street controls our financial lives; the media manipulates our minds. These systems cannot be changed from within. There is no alternative. Without a revolution, these institutions will bankrupt the country, keep fighting failed wars, start new ones, and hold us in perpetual intellectual subjugation." He appeared on the ''Glenn Beck'' show and criticized the U.S. stimulus plan of 2009, calling government controlled capitalism "fascism" and saying shopping malls in the U.S. would become "ghost malls." Celente has said, "smaller communities, the smaller groups, the smaller states, the more self-sustaining communities, will 'weather the crisis in style' as big cities and hypertrophic suburbias descend into misery and conflict," and forecasts "a downsizing of America."

Revolution in the USA

On Russia Today, he predicted that the USA would face a revolution.

Neosurvivalism

Celente's website has stated that:

Predictions

2009

"The Crash of '09 was as dramatic as the crash of '29. The New Depression had begun." (Trends Journal, Summer 2008, pg. 12)

2010

Some areas of the U.S. are experiencing resurgences in real estate values due to highly localized factors, and some investors profit from this. However, the rises will almost all stop and reverse with time, and the overall national trend in real estate values is downward. (T.J. Summer 08, pg. 8)

Ghost malls have become a common sight across America. Especially hard-hit are big chain stores (Sears, Home Depot, etc.). (T.J. Summer 08, pg. 8)

2011

Developers have begun rehabbing some of the ghost malls for more productive uses. (T.J. Summer 08, pg. 9)

2012

The economic policies of the U.S. government over the past few years have failed to fix America's fundamental problems and have merely papered over them and in fact made them worse. By 2012, the "American Empire" is collapsing. In the U.S., basic staple goods like quality food and water are too expensive for most people to afford,(T.J. Summer 08, pg. 1) and "food riots" happen across the country (T.J. Summer 09, pg.1). Major American cities look like disaster zones, and mass homelessness exists across the country. Crime is rampant, with much of it being directed at the rich. (T.J. Summer 08, pg. 1) Kidnappings and ransomings of rich people are on the rise. Average people fed up with big government, high taxes and out-of-control spending join tax revolts. (T.J. Summer 09, pg. 1) The world is also experiencing major environmental problems and "the blackest of plagues." The global financial system has also "melted down" and the situation is very bad outside the U.S.(T.J. Summer 08, pg. 1) The advanced industrial economies collapse first, and their sagging consumer spending drags down the export-based economies of emerging economies next.(T.J. Summer 09, pg. 2) The economy is as bad as it was during the Great Depression in many ways. In spite of all this, the U.S. government, power elites, and mainstream media continue to insist that the fundamentals of the world economy are sound, and that official policies can lead to a recovery. A growing number of average people, however, doubt this. (T.J. Summer 08, pg. 1)

While the Mayan and Hopi prophecies of global destruction do not come to pass, 2012 is indeed a watershed year that sees the death of an ailing and unsustainable global economic system and lifestyle and its replacement with something better. (T.J. Summer 08, pg. 2)

By 2012, Obama is viewed by most as a stale president who sold himself as a fresh, visionary candidate in 2008 and instead proved to be a servant of the big corporations and the military-industrial complex like his predecessors.(T.J. Summer 09, pg. 5) His economic policies only delayed disaster and in fact have made the situation worse: Expansionary monetary policy and the various government bailouts and stimulus programs create a "Bailout Bubble" that invariably bursts in a cataclysm for the U.S. and world economy.(T.J. Summer 09, pg. 11) Obama blames other factors for this and might have even tried to start a war by 2012 to distract attention from the domestic misery.(T.J. Summer 09, pg. 12) Obama's foreign policy has also failed to accomplish anything significant on the world stage, and Pakistan is a mess and the Afghan war continues to drag on without hope of conclusion.(T.J. Summer 09, pg. 12)

In the 2012 U.S. elections, online news sites, bloggers and independent journalists wield as much influence on voters as mainstream media outlets (TV, cable, magazines, newspapers) for the first time. This breaks the corporate and moneyed stranglehold on American politics and allows a third party to attain nation-level recognition. (T.J. Summer 08, pg. 5)

Broad future trends

Americans will adapt to lower standards of living and will travel less, both on a daily basis and for vacations. Higher fuel costs, advances in telecommuting and an aging American population will push many more people to work from home or close to home. Walking-distance communities will be constructed and will become popular. (T.J. Summer 08, pg. 7)

Geographically isolated resort destinations like Las Vegas will wither due to higher fuel costs, lower American incomes and increased overseas competition while vacation spots closer to population centers will revive. (T.J. Summer 08, pg. 9)

Government-run lotteries, on the other hand, will thrive. (T.J. Summer 08, pg. 9)

In America and to a lesser extent overseas, consumer spending habits will be motivated out of fear and escapism. Businesses that capitalize upon this will succeed. (T.J. Summer 09, pg. 24)

Publications

''Trend Tracking: The System to Profit from Today's Trends'' (1991), ISBN 978-0446392877

''Trends 2000: How to Prepare for and Profit from the Changes of the 21st Century'' (1997), ISBN 978-0446519014

''What Zizi Gave Honeyboy: A True Story about Love, Wisdom, and the Soul of America'' (2002), ISBN 978-0066212661

References

External links

trendsresearch.com

geraldcelente.com

Category:1946 births Category:Living people Category:American economics writers Category:Futurologists Category:People from the Bronx

de:Gerald Celente fr:Gerald Celente pl:Gerald Celente fi:Gerald Celente sv:Gerald Celente