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February 28, 2013

Economic crisis ‘balkanized’ global finance

The economic crises in the United States and Europe wiped out decades of progress in expanding the world financial system, depressing the flow of investments and loans across borders and potentially setting the stage for an epoch of entrenched low growth, according to a new study on global finance patterns.

The McKinsey Global Institute report combines databases from the International Monetary Fund, global central banks and other sources to try to sum up what has been lost in the aftermath of the 2008 Lehman Bros. failure and subsequent crisis in the euro zone.

The top findings: The amount of investments and loans flowing across international borders has collapsed. The overall value of financial assets compared to the size of the world economy is way down. And, in a sign of how government policy has struggled with mixed results to revive growth, the composition of world financial holdings has shifted away from equity investments like stocks and toward government debt.

Five years after the crisis, the report’s authors say, it remained unclear whether world financial markets would recover the depth and strength they exhibited in the decades before 2007, a historic year when $11.8 trillion in investments and loans traded hands across borders, and total financial assets in the world equaled 355 percent of world economic output.”

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Read full Washington Post article here

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