ABSTRACT
Adjustments to valuations in bank balance sheets during the Great Financial Crisis (GFC) have been estimated to be at least $2 trillion for the world (IMF, 2010). The cost of government bank rescues and aid to the financial sector in response to these adjustments transformed the public finances in countries with large financial sectors. In the UK, funding the rescue programme raised the ratio of government debt to GDP from some 40 per cent to around 150 per cent (IFS, 2014), a level not seen since the aftermath of the Second World War. The fiscal policies adopted in response to these worsening public finances have produced results reminiscent of the Great Depression which preceded World War 2: it has been estimated that for the world economy, the long-run total output loss will be at least $60 trillion (Haldane, 2010). Much of the cost has been borne by innocent and vulnerable groups: youth unemployment has risen to exceed 20 per cent in the UK and 50 per cent in Spain (Eurostat, 2014).
