World Financial Crisis Explained

[varikonniemi]

[PicassoCT]

i wish this would make it into a history textbook, on the last page, and below the sentence- and allthough all information is stored in here, nothing is learned of it by those who rule.

its one big irony that democracy is only stable while having a surplus, and therefore must resolve to loaning. We sure are one big messed up tribe of apes. Makes you wish you could leave the planet before it all comes crashing down.

[SwiftSpear]

It's not really that simple. Being locked into the euro really didn't help those small struggling economies either.

[Licho]

Meh can anyone explain to me why banks create money, lend it to governments who become indepted?

I know it was setup to combat inflation but thats stupid, state should be able to avoid debtrap, if it needs to, by printing money (getting them from central bank).

Surely minor inflation is better than debt spriral of doom which depresses economy and hurts people.

[dansan]

How is a state in capitalism supposed to have a positive account?

* Everything that makes profit is to be privatized and everything that cannot make profit (because it is just infrastructure for the producers, like schools, streets, medicare, administration etc) has to be state owned. You surely have observed that.

Next thing is inter-state-concurrency:
* text="lower your taxes, or the industry goes to your neighbor"
-> low taxes for producers
-> low state tax income
* text="wages are to high - we'll go to your neighbor"
-> low wages for employees
-> low state tax income

Who wins and who looses in the above scenario?

[PicassoCT]

ahem..selling the (access to the) citizens. All this presumes anybody everybody feels still bound to some sort of legislation, and therefore money has any basis at all, beyond wishfull thinkering.

[SwiftSpear]

Meh can anyone explain to me why banks create money, lend it to governments who become indepted?

I know it was setup to combat inflation but thats stupid, state should be able to avoid debtrap, if it needs to, by printing money (getting them from central bank).

Surely minor inflation is better than debt spriral of doom which depresses economy and hurts people.

Banks don't create money. Clients put money in banks which they then lend out. The only exception is the federal banks of many countries, which control the national treasuries generally. Bank of America, for example, can't create money.

[Johannes]

They don't just lend out the money their clients give them for caretaking, but ~10x (iirc) that amount. And that sum, when deposited, can be used as a basis for still bigger loans.
Whereas ordinary people or companies can do nothing of the sort.

So if you don't like the "create money" term, what would you call the phenomenon?

[KaiserJ]

polandball comics are the best!

[PicassoCT]

the problem is that a normal economy doesent create enough sugar to bribe people to stay "democratic".. so every once in a pile, some goverment decides that tomorrows troubles sound better then todays- and weeee downhill - and most saddly of all, we voters reward such financial hipocrisy. Because thats what stucks, when most of the conservative elderly vote- "Keep it this way, stable, no matter the cost for the outsiders, no matter the costs for tomorrows generations. Just keep the troubles out of my life, then i will keep the power flowin."

Its not a beautifull system, but its one of those, that appear whenever you dont decide to alter reality by applying wishfull thinking and idealism. From Time to time, the limits are reached.

[Hoi]

Meh can anyone explain to me why banks create money, lend it to governments who become indepted?

I know it was setup to combat inflation but thats stupid, state should be able to avoid debtrap, if it needs to, by printing money (getting them from central bank).

Surely minor inflation is better than debt spriral of doom which depresses economy and hurts people.

Banks don't create money. Clients put money in banks which they then lend out. The only exception is the federal banks of many countries, which control the national treasuries generally. Bank of America, for example, can't create money.

Oh they do. Fictional money though. 0's and 1's. If everyone were to get all his/her money out of the bank right now, nearly none of the people would get it.

But we should also add how the banks borrow money from central banks for (example) 0.1% interest rates and then buy obligations from the state and receive much higher interest, it's called stealing from the people.

The very existence of interest already makes fictional money, because if I borrow $100 and need to pay back $110, the $10 doesn't exist in the real world, and will require an ever increasing amount of labor to be performed at ever increasing growth rates for this system not to fail immediately, which by the way, is happening right now. It's a scam by the banks and affiliates to turn people into slaves, a plan that has worked so far but will fail soon.

[BaNa]

Thanks for the laugh OP

[KDR_11k]

The big problem with Greece was that we acted too late. By the time we took major actions Greece was already completely out of money and the cuts necessary to prevent an immediate default were so severe that the Greek economy collapsed, further amplifying the problem (no economy means no income for the state). Greece needs to get its economy started again but that requires investments and Greece doesn't have the money for those.

Looking at the data Paul Krugman presents it looks like other countries are doing the wrong thing with their austerity policies though. The recession hasn't passed yet and to get out of it the govts have to make investments, austerity prolongs or even deepens the recession. The kneejerk reaction of "save money NOW" is hurting those economies and making things worse. Merkel is probably the biggest problem there, demanding strict austerity from everybody, even those who have the means to boost out of the recession before getting into saving money again.

[Licho]

Banks DO create money. Read fractional reserve system.

Banks dont borrow money that people save them.

Banks borrow money that dont exist yet and get interests back.


Its perverted system and it being used in almost all countries now.

[scifi]

you forget, the majority of people in country's aided my the IMF didn't live a life of luxury, wasting EU money like that image pretends we did.
Although i like the image, good job on that.

Just a few facts, Greece has the less debt per person in the Euro zone, in the private sector each person has less debt, than the average European.
Problem is the public sector.

Portuguese banks weren't affected by American banks collapse at all.

So the problem remains what the hell did happen.
(Portuguese perspective)
Simple, poor choices, poor investments, we invested in a 100% state controlled economy-
We made huge investment's in company's like GALP, petroleum company that has large mining operations in Algeria and Angola and arabia.
EDP, electrical company leading in renewable energy's(bought my Chinese people).

But forgot to reap the benefits, 2 examples of this, are the huge investments made by the Portuguese state in cabora bassa dam, we made the dam in Mozambique, and we sold it for even less than the price we had to pay to build it.
Another example is how we let technology slip pass us, EDP invented 2 new wind panel designs, we just let a silly French company take the design (for free), and we bought the designs from them later on.

What you are looking at is a purely disorganized and silly state runed economy, instead of letting the private sector take control of these industries and let smaller enterprises flourish , no we created strict monopolies centered around huge investments in state company's.

State cant control and own the economy like it did before, this was our problem, having such control lead, to inefficiency , lack of vigilance and investments into company's that are being sold at the price of "rain".

And the irony is, we are liberalizing everything, instead of selling to different parties no we are creating a private Haven. Where 1 single private company has the rights to explore a given sector.

[Forboding Angel]

Thanks for the laugh OP

^^ This

[VelvetClaw]

Quite but not quite.

If you want my drift, it's this: it's all because of a series of nasty incidents, all feeding into the crisis.

The first was Europe. I would say (as an Asian myself) that Portugal's problems weren't unique to itself, they were all the problems of all European micro-economies.
It seems odd that nations, as a whole, have different sentiments compared to humans when it comes to saving. We see saving and investing as a virtuous thing to do individually, yet when a government does the same thing, we begin to get upset, and demand that the government instead disburse the money in the form of "social service expenditure." Poor countries that solve their own problems become great, rich countries that fail to solve theirs simply don't become poor, they sometimes go extinct. Let's hope that's not the case with Europe now.

The second was the War on Terror. Following the 9.11 attacks, the American economy, already in a deficit and trying to clear it, fell into a slump, hitting big and small businesses alike, and redirecting money into the one big asset class left worthy of investing into: real estate. This also caused a real estate boom worldwide, of which we in Asia are also seeing the effects. American investment simply left American shores to seek other areas elsewhere, Europe and Asia included. If you remember, what caused the credit crunch was the falling price of houses in 2007, which eventually caused quite a number of financial firms, Bear Sterns and Northern Rock, to eventually give way.

The moral of the story is this: make hay while the sun shines, and always save for a rainy day. Good times don't last forever.

[smoth]

The moral of the story is this: make hay while the sun shines, and always save for a rainy day. Good times don't last forever.

I like this. Nice quote

[VelvetClaw]

The moral of the story is this: make hay while the sun shines, and always save for a rainy day. Good times don't last forever.

I like this. Nice quote

Indeed, Smoth. But you see the problem about Europe (from what I see as an outsider) is that they often prefer to "dunk the rich" as opposed to finding ways to compelling the rich to work for them, either by making people richer (through investment) or by making "loopholes" that benefit them in the short run but in fact benefit them over the long run.

Then again, maybe that's what we need to expect from the people who gave us Marxism and Fascism, after all. I won't go off into a "north-versus-south" dichotomy on the PIGS - that one's been repeated ad nauseam. Italy and Greece have quite a long way to go, I think - I mean it is hard to think that they really are poor or totally wiped out as the OP cartoon suggests, when you keep passing ads on walls seeking people with special skillsets in England and Spain.

What Europe needs to do is to get its young people to fill in those skillsets, but then again we Asians have no living memory of fascist rule.

And the irony is, we are liberalizing everything, instead of selling to different parties no we are creating a private Haven. Where 1 single private company has the rights to explore a given sector.

Last time I checked on that, a lot of Brits told me that when Thatcher "sold off the family silver", a lot of people bought over the stocks and shares, and simply speculated in them.

Many of those shares eventually ended up in the hands of the big fatcats we see today.

[Das Bruce]

but then again we Asians have no living memory of fascist rule.

Where are you from specifically? I don't know many Asian countries that are models of democracy.