Magic Bible Arts – Extrait 11
abuse the system to make money knowing that the government will be there anyway to rescue the situation if something bad happened. Not something bad happened, something worst. While subprime crisis and to a further extent the derivatives mishandling is a symptom of the financial disease we were made involved in, the debt from the private financial sectors was effectively transferred to every single one governments of the country where the banks involved were working (UBS, BNP, Citigroup and so on).
The economist: The financial system What went wrong? March 2008 HYPERLINK "http://www.economist.com/node/10881318" http://www.economist.com/node/10881318
Subprimes are not new, it is an effect on the virtualization of money, and I would like to come back on one turning point in finance history: The 18th of January 1800, Napoleon creates the central bank of france, its mission: support the development of an economy struggling after revolution. how? by creating notes, that are payables and receivables in presence or in exchange of the benefits from the expectations of the business. Notes were already existing, but those emitted by Law's bank as the others only offers sad memories. For success, the new organization has to give the customer trust in paper money. This objective has never left the bank since then Source (in French): HYPERLINK "http://www.banque-france.fr/fr/instit/histoire/1.htm" http://www.banque-france.fr/fr/instit/histoire/1.htm
The image I would draw from this whole story is that money is the blood of our whole system, we can see injured that we are an hemophilic society and our immune system is not mature, another reason to keep an eye like GPs on the financial sector. National debt The subprime crisis gave birth to another concern of the disease we are subject of. This symptom, and treatment disclosed above, gave sight to the structural imbalance of the budget of a government. While it is true national government had to cover the financial sector, as we are in a worldwide sector where every single banks are interdependent (contracting loans from one to the other), the financial crisis created a change in the world consumption. Via the diminishing exports, the high exchange rate (for the euro for example), the subprime crisis, the structural imbalance of a country (in term of pension, in term of structural unemployment and so on), the budget of each country couldnt be balanced.
Economists think indeed that in time of recession money needs to be inputted into the system to rebalance it and stimulate the economy (internally and externally). Still, there is no way to understand where exactly to stimulate the economy and how to exactly get the effect wanted. As a broad answer from the economy side: it depends, we should do this way, and let the market rebuild itself, but ultimately it depends. As an example of the complexity around, raising taxes in a period of recession would ensure reducing the imbalance in the government budget. Still, it makes it more unwelcome for companies to set up or to invest assets and means in the country. A Paradox, another one. Its only one example. National debt is contracted through one government and its central banks on international finance, to a country level.
Hence when contracting debts, there are an interest rate and a principal to pay. This interest rate is following the market depending on the health of the national debt of a country. While a country is never believed to be able to default, we evolved again in the extreme of the probabilistic area following finance distrust and so on. The interest rate of bonds released by each country reached high level. (Long term bond of Greece difference to long term bond of Germany which is the reference is the EU going as far as 4%). At a time where national debt stands above
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