Gerald Celente | HOT 2016 The Financial Crisis and the Global Shadow Banking System – Crash Will be Worse than 2008
Amber William
MyDailyInformer.com
April 15, 2016
The term financial crisis is applied broadly to a variety of situations in which some financial assets suddenly lose a large part of their nominal value. In the 19th and early 20th centuries, many financial crises were associated withbanking panics, and many recessions coincided with these panics. Other situations that are often called financial crises include stock market crashes and the bursting of other financial bubbles, currency crises, and sovereign defaults.Financial crises directly result in a loss of paper wealth but do not necessarily result in changes in the real economy.
Is financial history destined to repeat itself? It would appear to be something of a result of the way markets function. A boom creates excessive interest and lofty prices. The ensuing crash results in “never-again” style regulations, only for another crisis to pop up, sometimes as soon as the next year. Most recently, the world has had to cope with the European sovereign debt crisis, a problem that never seems able to go away entirely and seems to get worse with each ensuing multi-billion dollar bailout.
Many economists have offered theories about how financial crises develop and how they could be prevented. There is no consensus, however, and financial crises continue to occur from time to time.
Some financial crises have little effect outside of the financial sector, like the Wall Street crash of 1987, but other crises are believed to have played a role in decreasing growth in the rest of the economy. There are many theories why a financial crisis could have a recessionary effect on the rest of the economy. These theoretical ideas include the ‘financial accelerator’, ‘flight to quality’ and ‘flight to liquidity’, and the Kiyotaki-Moore model. Some ‘third generation’ models of currency crises explore how currency crises and banking crises together can cause recessions.
Markets, despite their collective expertise, are apparently destined to repeat history as irrational exuberance is followed by an equally irrational despair. Periodic bouts of chaos are the inevitable result.
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