Was the financial crash in 2007/8 avoidable? Well, yes, according to an article I’ve just read.
What happened back then was produced by reckless policies of central bankers and politicians. Cheap interest rates encourage government and people to borrow so that they can spend. Things boom. When customers deposit money into their bank, the bank only keeps 3 percent of it. The other 97 percent is lent to other financial institutions who only keep 3 percent of that money and lend the other 97 percent and so on and so on.
Eventually the banks run out of money and start calling in loans. It eventually leads to things going bust and more damage to the economy.
Are there solutions? Yes. First governments should attempt to balance the economy over a 5 year period without shifting the goalposts, in other words balanced over the 5 year parliamentary term. Annual borrowing should be limited to 3 per cent of GDP or GNI (its the same discredited system). Banks should be forced to hold 30 per cent of their assets in cash – building to which refers to banks holding ‘capital’ not cash. Banks capital is made up of (bad) loans to other banks. Lastly, markets should set interest rates not bankers.
Boom and Bust
Was the financial crash in 2007/8 avoidable? Well, yes, according to an article I’ve just read.
What happened back then was produced by reckless policies of central bankers and politicians. Cheap interest rates encourage government and people to borrow so that they can spend. Things boom. When customers deposit money into their bank, the bank only keeps 3 percent of it. The other 97 percent is lent to other financial institutions who only keep 3 percent of that money and lend the other 97 percent and so on and so on.
Eventually the banks run out of money and start calling in loans. It eventually leads to things going bust and more damage to the economy.
Are there solutions? Yes. First governments should attempt to balance the economy over a 5 year period without shifting the goalposts, in other words balanced over the 5 year parliamentary term. Annual borrowing should be limited to 3 per cent of GDP or GNI (its the same discredited system). Banks should be forced to hold 30 per cent of their assets in cash – building to which refers to banks holding ‘capital’ not cash. Banks capital is made up of (bad) loans to other banks. Lastly, markets should set interest rates not bankers.