19th International Conference Working Papers
The Housing Crisis RevisitedArturo Guillen R., Universidad Autonoma Metropolitana Iztapalapa Full professor and researcher at the Economic Department of the Universidad Autónoma Metropolitana, Iztapalapa campus, Mexico City. Head, at the same university, of the Graduate Program in Social Studies, Social Economics Area. General coordinator of the Celso Furtado Network for Development Studies. www.redcelsofurtado.edu.mx. Personal e-mail: artguillenrom@hotmail.com. Fax: 52 55 5612-5682. Download the Paper (PDF format) - July 14, 2009 Tell a colleague about it. Printing Tips: Select 'print as image' in the Acrobat print dialog if you have trouble printing. ABSTRACT: The global financial crisis has gone through two big phases. The first went from August 2007 to March 2008, when the subprime mortgage crisis sharpened, the mortgage-backed bond and derivatives market collapsed, and the credit crunch began. A second stage begun in September 2008 and lasting until today is characterized by a sharp credit contraction in all markets, the onset of the banking crisis, the failure and disappearance of investment banks, plummeting stock markets, massive withdrawals of capital from emerging markets, and the beginning of the global recession. In contrast with the first phase, in which the turbulence originated in the financial sector and spilled over into the real economy, the main characteristic of the current phase is that it centers on the real economy, whose profound recession will sharpen the financial sector’s fragility as well as the current deflationary process. Deflationary trends should be expected to continue since the price of real estate, financial assets and commodities will continue to drop; stock markets will continue to be weak; and unemployment will increase substantially. The dangers of USA and other countries falling into what Keynes called the “liquidity trap” are real. Recovery from this crisis will be long and difficult. Meanwhile contemporary capitalism has better instruments for containing deflation and preventing it from becoming a severe depression like the one in the 1930s, those instruments are increasingly costly and ineffective, just as today’s situation proves. And they are increasingly ineffective because while they limit generalized deflation, at the same time they validate the previous debt structure without creating the conditions that would foster a vigorous recovery. In other words, they institutionalize economic stagnation. This paper was prepared for presentation at the 19th International Conference of the International Trade and Finance Association in Beijing, China, May 27-30, 2009. SUGGESTED CITATION:
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