Origin of Financial Crises (eBook)

George Cooper (Autor)

eBook Download: EPUB

2008 | 1. Auflage
210 Seiten
Knopf Doubleday Publishing Group (Verlag)
978-0-307-47368-4 (ISBN)

Infos

In a series of disarmingly simple arguments financial market analyst George Cooper challenges the core principles of today's economic orthodoxy and explains how we have created an economy that is inherently unstable and crisis prone. With great skill, he examines the very foundations of today's economic philosophy and adds a compelling analysis of the forces behind economic crisis. His goal is nothing less than preventing the seemingly endless procession of damaging boom-bust cycles, unsustainable economic bubbles, crippling credit crunches, and debilitating inflation. His direct, conscientious, and honest approach will captivate any reader and is an invaluable aid in understanding today's economy.

From the Trade Paperback edition.

Textauszug

The first years of this millennium were marred with a corporate credit crisis, this being the hangover of a credit binge associated with the stock market boom of the late 1990s. Just as this crisis ebbed we found ourselves engulfed in a housing boom and, sure as night follows day, this boom has now morphed into its inevitable credit crunch. The proximity of these boom-bust cycles has fuelled the popular perception that financial crises are becoming larger and more frequent. The following chapters will explain why this popular perception is correct. Toward the end of the book I make some policy suggestions that, it is hoped, could begin to dampen the current chain of overlapping boombust cycles. The overall thrust of these suggestions is that avoiding the financial tsunamis comes at the price of permitting, even encouraging, a greater number of smaller credit cycles. And also at the price of requiring central banks to occasionally halt credit expansions. That is to say, the central banks must be required to prick asset price bubbles. Key to the success of any such policy will be a political climate that accepts the need for symmetric monetary policy, excessive credit expansion should be fought with the same vigour as is used to fight excessive credit contraction. As things stand neither politicians nor voters are ready for such tough love and central bankers have neither the stomach nor inclination to deliver it. In large part this is because economists have taught us that it is unwise and unnecessary to combat asset price bubbles and excessive credit creation. Even if we were unwise enough to wish to prick an asset price bubble, we are told it is impossible to see the bubble while it is in its inflationary phase.We are told, however, that by some unspecified means the bubble's camouflage is lifted immediately as it begins deflating, thereby providing a trigger for prompt fiscal and monetary stimulus. In recent years this lopsided approach to monetary and fiscal policy has been further refined into what has been described as a 'risk management paradigm', whereby policy makers attempt to get their retaliation in early by easing policy in anticipation of an economic slowdown, even before firm evidence of the slowdown has been accumulated. This strategy is perhaps best described as pre-emptive asymmetric monetary policy. To followers of orthodox economic theory, based on the presumption of efficient financial markets, this new flavour of monetary policy can be justified. Yet, current events suggest these asymmetric policies have gone badly wrong, leading not to a higher average economic growth rate, as was hoped, but instead to a an unsustainable level of borrowing ending in abrupt credit crunches. 1.2 Efficient Markets -- More Faith Than Fact The bare outlines of a competitive profit-and-loss system are simple to describe. Everything has a price -- each commodity and each service. Even the different kinds of human labor have prices, usually called 'wage rates.' Everybody receives money for what he sells and uses this money to buy what he wishes. If more is wanted of any one good, say shoes, a flood of new orders will be given for it. This will cause its price to rise and more to be produced. Similarly, if more is available of a good like tea than people want, its price will be marked down as a result of competition. At the lower price people will drink more tea, and producers will no longer produce so much. Thus equilibrium of supply and demand will be restored. What is true of the markets for consumers' goods is also true of markets for factors of production such as labor, land, and capital inputs. --Paul A...

Produkt-Details

• Erscheint lt. Verlag: 9.12.2008
• Sprache: englisch
• Themenwelt: Wirtschaft ► Allgemeines / Lexika
• Themenwelt: Wirtschaft ► Volkswirtschaftslehre
• ISBN-10: 0-307-47368-6 / 0307473686
• ISBN-13: 978-0-307-47368-4 / 9780307473684