THE GRIP OF DEATH
THE MONEY SUPPLY IN THE SYSTEM
THE
ROLE OF THE GOVERNMENT TO CONTROL THE MONEY SYPPLY IN THE SYSTEM AND THE BANK
PERFORMING ACTION THAT CAUSESS HOUSING BUBBLE IN UNITED STATE OF AMERICA.
Table of Contents
External debt or foreign debt
The amount of that is own by the
country from another country through creditors, international financial intuition,
private bank etc. The borrower can be house hold owner, private limited company,
public limited company and government. The debtor countries work under some
condition to full fill the debt obligation without taken any relief or rescheduling
the debt amount but Leander allow them to spend money to reach a particular
level of economic growth.
The external debt sustainability analysis
measures the behavior of the economics variables and find out level where debt
and other indicators were stable. Actually we analysis the current account
uncertainties and fiscal policies uncertainties. Only those countries full fill
the external debt sustainability who meets the future and current debt services
obligation without affecting the growth level.
These indicators help the policy maker
in their external debt management exercise help ful to understand the country
solvency make a sustainable level of external debt and it explain the country
ability to generate resources and repay debt lone on a particular time period.
These are some indicators ratio like debt to GDP ratio, foreign debt to export
ratio, government debt to current fiscal revenue ratio.
Debt Abolition
The jubilee debt campaigns mention six
points about the third world, why debt should be cancelled.
(1) Government emphasis on reducingpovertybut
fail due to high payable of debt.
(2) The big part of money is vast in
term of corruption.
(3) Government spent money on that
project that is unwisely due to Leander incompetence.
(4) Government accepts debt with
unfair condition.
(5) The interest rate increases the
debt burden.
(6) The amount of debt grows faster
than the amount of debt country pay.
In 1980Latin American countries
experiences hyperinflation, fixed exchange rate was used to under control the
inflation. For example Argentina issue new currency and against US Dollar,
since for every new unit of currency issued by the Argentine central bank. The
central bank had to hold a US Dollar against this. Therefore in order to print
more Argentine currency. The government required additional US Dollar, before
the currency regime was in place. According to new system , the government
earning through taxation is less than their expenditure, it need to cover gap
with US Dollar rather than sampling print more money, for getting US Dollar
government impose high taxes or borrow the US Dollar but these US Dollar
borrowing increase the budget deficit and alternatively debt of US Dollar reach
unsustainable.
Debt is continuously increased till 1990;
thegovernment of Argentina takes borrowing and creditors continued to lend
money, while the IMF advice to stop government to take borrowing again and again.
This process increase the debt growth until the country increase his earning
more than its expenses.
The life of the people has change
dramatically when the country will eventually overcome the crisis after a
difficult period. “According to a wide string
of surveys, on average six out of 10 households in debt ridden Greece
have been affected by the crisis and the austerity drive launched by the
government in 2010”.dryecrese in salary and pension amount up to 30%, increase
unemployment rates, taxes and recession increase, difficult for the household
to pay bills. People of Greek stand strong on their feet and they weremore
pessimistic regarding the near future of economic.
“I want to be optimistic. I believe
that in a couple of year we can exist the crisis, if we exploit our natural resources
and human potential. Greece is a rich country, but we still have not made full
use of our geostrategic advantages “CHRISTOS VASSION
These people resist the measure
because they had not been convinced by policy makers and bad management or
corruption they did not except that the worst scenario would witness a default.
But government official explain that they cut in public expenditure, subsidies
most vulnerable group of society and try to generate sustainability of the
system.
More than 25 Latin American and African countries were effected by debt crisis in
1980.In 1970 Africa government force to barrow money from foreign bank and
financial institution create pressure on African government to implement policy
reform. Due to barrow money increase the cost of labor, people increase
productivity but in low quality. The crisis would be held in two phases, and
most of the time foreign government intervenes with the help of international
agencies. The phase one would be dominate by monetarist policies.in this phase
the country was not libel to payback interest payment and take help from IMF to
payback lone.IMF put some condition in term of cut in subsidies to products and
program , wage suspension, retrenchment in public sector, massive devaluations
that destroyed many country economy. The phase two would start after 1984 in
the form of World bank “economic recovery and development plans “the world bank
announced that it provide 1 billion for 50 countries in term of soft lone, most
of the countries would accept this offer for economic recovery.1n 1985 free
market economy undergone by many African countries. The main objective was to
create an environment more congenial to business investment, and make labor
competitive on the international market. The working class standard of living
would be affected.
In simple words vicious cycle is a
cycle where we know about the country expected growth rate and the national
debt burden. Therefore investor is more pessimistic and mostly invests money in
US treasuries to secure his money. Due to this the bond yield goes up and build
up high fiscal pressure, when the amount of the service debt would be higher.
According to the
Niall Ferguson “The worse things get in the Euro-zone, the
more the US dollar rallies as nervous investors park their cash in the 'safe
haven' of American government debt”. In 2007 US treasury department explain
that “foreign demand for US Treasury securities fell by a record amount in
December as China purged some of its holdings of government debt” and what
happened after this “"shift in demand comes as countries retreat from the
'flight to safety' strategy they embarked on upon during the worst of the
global economic crisis and could mean the US will have to pay more to service
its debt interest."
Tricky
balancing act explain how US government took some important measure to put the
country out of crises, because surging debt make it difficult for the US
government to grow his economy. Side by side revise the fiscal and monetary
policy because in previous strategies many drawbacks were present, no
government support to economy. What happened “creates a lose-lose situation in
which, whatever the government does, the likelihood of another economic crisis
increases by the day”.
Internal Debt Crisis:
Society is based on institution like
financial institution, social institution, legal institution, economic
institution, political institution and so on. Theseinstitutions build up monitorypolicy,
how money is created, and what government policy occurs, money effect on society.
In 1960 US government required 10 billion dollar. It take lone form friction
reserve bank in term of government bond these bond convert into treasury bond
now US government able to further lending this amount.
According to law the bank can only
lend 90% of their amount and it is necessary to hold 10% amount as a reserve.
The bank can only take promissorynotes in term of lone transaction. According
to the economist only three percent physical money is available in the society
remaining 97% money is present in computer or in electronic transaction.so what
actually happened 10 billion convert into 90 billion now bank have enough money
to lend it the customer. Due to increase money in the society the money supply
is increase and the power of buying dollar is decrees, inflation is increase,
people perform more work for survival. These factors start musical chair system
because only principle amount is present in the economic where is the bank
interest rate so most of the people were bank corrupt.
In 24 December 2009 US government
provide unlimited financial support to Fannie Mac and Freddie Mac for
compensation 400 million up to the next three year. When bank have enough money
to lend they make subprime lone for the house hold owner. The subprime lone is
help the bowered to reschedule the lone.in old case lender is more conscious
about the borrowereither they can pay back the lone or not. But in new case
lender sold the mortgage to the investment bank, investment bank combine many mortgage
called CDO, these CDO further sold out to investor, investment bank ask rating
company to rate these CDO (collateral debt obligation) and most of the time
rating company gave AAA rating to the CDO and insurance company also insure
these CDO. In the beginning insurance company get huge profit but they have
done big mistake because they did not separate any amount of money when these
CDO not perform well. Now the whole circle will be based on home owner if they
fail the whole circle well be fail and more than one sector will be suffer.
In 2006, in United states the housing pricing would be decrees but
not yet have hit the bottom.in October 2007 the US secretary says that “the bursting housing bubble "the most
significant risk to our economy. “These things will not affect only home valuation
but also affect the home supply (real market) mortgage market, hedge fund (Wall
Street) and also increase the risk of the lending. The economist magazine said
that “The worldwide rise in house prices is the biggest bubble in history”Causes:
It is very difficult to find out the causes that are affecting the whole economy, its chain of event that occurs time to time. According to my knowledge and the related research, money supply is the most important factor and government fail to control the money, no proper arrangement, the government did not think where they invest money to generate excess amount to pay back the lone.so every new government well take more lone to pay back the previous lone, the interest rate would be increase after passing time and at the end debt well capture the whole country.
Many things well be face after taking
one wronged decision between 1997 to 2005 the increase in housing price would
widely affect the united state economy.
§
The price of the new building house
would be increase.
§
The home owner equity would be increase
up to 106 billion to 750 billion.
§
The price of the land is very from
area to area, which reached 85% of the total value fo the house
§
The buying power of the dollar is
decrese.so the price of the goods were increase.
§
Unemployment increases in United State
because most of the businesses were closed out.
§
The interest rate were increase, bank
mostly lend subprime lone to get maximum return.
§
Countries increase the productivity to
meet the export target and balance of payment.
§
People perform more work to maintain
their life style.
§
In debt base economy, the money is
created by bank and end up in the bank. People were for the bank.
• The tension created
by indebtedness forces us to innovate, to find creative new ways of
overproducing.
• Increase number of
product but less quality.
• Distribution of
income create problem in modern capitalist economy.
• Government is
responsible to supply money in economy as it required.
• Debt is a weapon use
to concur the social society and interest is prime ammunition.
• Debt base economy is
not good in long run.
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