The Global Financial Crisis is because o

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The Global Financial Crisis : 

The Global Financial Crisis

The Global Financial Crisis : 

The Global Financial Crisis “I found a flaw. I don’t know how significant or permanent it is, but I’ve been very distressed by that fact ... [I found a] flaw in the model that I perceived is the critical functioning structure that defines how the world works.” Former Head of US Federal Reserve, Alan Greenspan – 23rd October 2008 Alan Greenspan described the current economic situation as ‘Once-in-a-century credit tsunami’

The Global Financial Crisis : 

The Global Financial Crisis IMF Chief warned that the global economic crisis was even endangering the fund itself, which risked running out of money if it had to meet all potential claims on its resources. Dominique Strauss-Kahn (Dawn – Economic & Business review, February 2, 2009)

The Global Financial Crisis : 

The Global Financial Crisis Everybody’s lost in Davos. No one seems to have a clear understanding of how big this crisis is and what we need to do to get out of it. My own view is that you really need to do a fundamental re-examination of the whole global system to see what went wrong, and nobody here is yet ready to ask these kinds of fundamental questions in Davos. Kishore Mahububani, Dean of the Lee Kuan Yew School of Public Policy in Singapore - February 1, 2009

The Global Financial Crisis : 

The Global Financial Crisis "what we are going through is the crisis of the gigantic circulatory system of a global capitalist system that is… coming apart at the seams" George Soros

The Global Financial Crisis : 

The Global Financial Crisis Root Cause of The Current Financial Crisis Virtual Economy

The Global Financial Crisis : 

The Global Financial Crisis Real Economy:One is the real value of commodities and services in a given economy which corresponds to the real economic growth and production. Virtual Economy: Imaginary value of stock prices and the accumulation of interest (usury) in the banks. VE allows the economy to appear much larger than its real size. This economy is based on the assumption that the real money will not be tapped into and therefore, it is possible to deal with an assumed larger (virtual) value for the money.

The Global Financial Crisis : 

The Global Financial Crisis Virtual Economy: A virtual economy system, similar to a virtual memory systems, is bound to crash (thrash) at any point when the instant demand for finance at any given time exceeds the real value of the real economy. The current financial crisis in the US and the world at large is a striking example of a virtual economy crashing (or thrashing).

The Global Financial Crisis : 

The Global Financial Crisis At the time of great depression in 1930 the ratio of Real economy to virtual economy was 80:20 but know this ratio has been turned around to 20:80. So this is much bigger crisis then 1930’s depression.

The Global Financial Crisis : 

The Global Financial Crisis Virtual economy consists of three parts Stock Markets The Usury Breaking away from the Gold Standard (Fiat Currency)

The Global Financial Crisis : 

The Global Financial Crisis Stock Markets Wealth associated with stock values grew at a much higher rate than the wealth associated with the real economy. Prices of financial market increased during the preceding period from 1925 to 1929 by 120%, while economic growth for the same period did not exceed 17%. And when the market collapsed, it lost over 93% from its value, which means that the market returned to its real value which was obviously much lower than what the stock market indicated. The same scenario repeated itself in 1987 when the market collapsed again

The Global Financial Crisis : 

The Global Financial Crisis Stock Markets By the end of the twentieth century the virtual economy was again three times the size of the real market value and this scenario came to be known as the Internet (or DOT COM) Bubble. Nominal values of stocks do not reflect the reality of economic production. It is possible to increase the value of the shares of a given company without any real increase in production or profit. e.g Amazon, where its stock value exceeded $300 at a time when the company had not achieved any profits. Enron is another example, where the rising value of their stock was based on false information about fictitious profits.

The Global Financial Crisis : 

The Global Financial Crisis Stock Markets The danger of the virtual economy is that it creates a state of delusion in the economy, which can deceive senior economists and politicians, and drives them to undertake projects larger than their real wealth. The direct cause of a stock market collapse is the attempt made by some investors to transfer what they own from fictitious money to real money.

The Global Financial Crisis : 

The Global Financial Crisis Stock Markets Company ‘A’ has 1000 shares. Each share has a worth of Rs.100. Total stock value is Rs.100,000. Assume real value of the company is Rs.10,000. It means real value of the company is 10% of total stock value. Major investor sells 50 shares at Rs.100 and cashes Rs.5000. Remaining share holders will not be able to get more then Rs.5000. Another investor sells 50 shares at Rs.5 cashes Rs.2500. When 10,000 are gone , shares will go to zero. This is how the stock values of Enron and Martha Stewart companies collapsed.

The Global Financial Crisis : 

The Global Financial Crisis 2. The Usury The objective of the financial policy in the capitalist economy is to maintain the highest return on production and labour and to sustain price stability. This objective will be achieved through a mechanism that controls the value of usury (interest rate). During a recession in the economy, the state reduces the value of usury in order to encourage borrowing and increase the demands on goods and services. Conversely, the value of usury would be increased to curb inflation. Financial institutions offer loans to individuals, companies, institutions and even governments themselves.

The Global Financial Crisis : 

The Global Financial Crisis 2. The Usury Money flows in two directions. In one direction, the money flows from the investors towards the bank in a form of deposit payments. Other direction is from the banks to the investors in a form of loans. Except for cases where the inflation rate is higher than the interest rate during the repayment period, the amount of money going towards the bank is steadily more than the amount of money going towards the investors.

The Global Financial Crisis : 

The Global Financial Crisis 2. The Usury If the real money is the money which the investors deal with to increase production and to maintain price stability as required by the fiscal policy, this money will certainly be less than the money that accumulates in the banks. This is the main reason for the difference between the real money and the virtual money.

The Global Financial Crisis : 

The Global Financial Crisis 2. The Usury Bank provided 100 million Rs. with 5% usury for one year. Inflation rate is 2%. Real interest rate become 3%. Loan was spent on a project and get 2% profit. Bank will get 103 million Rs. The real money is 102 million Rs. One million does not correspond to actual value. (Usury) Biggest borrowers are governments and pay for their operation not for profit projects. There accumulated usury will be much higher then the ratio of 1% in the above example. usury money can reach during a specific period of time hundreds of billions of dollars and up to twice the amount of real money.

The Global Financial Crisis : 

The Global Financial Crisis 2. The Usury Real economic growth rate in the US was no more than 3.5% during the last (30) years, while the actual interest rate was more than (8%). This means that virtual money over (30) years was (135%) of the actual value of money. So if the actual value of the US economy was 5 trillion dollars, the value of usury excess of the true value will be $6.75 trillion dollars. This makes the virtual money value (11.75) trillion dollars.

The Global Financial Crisis : 

The Global Financial Crisis 2. The Usury The reality is that most banks do not invest their money in production processes, but rather by investing in other banks and by recycling the loans to other borrowers. This makes the virtual money increase repeatedly and multiple times. what encourages and motivates the continuation of the increase in virtual money is the absence of the urgent need to withdraw large amount of funds from many banks at once. When one of these banks gets exposed to pressure from investors and depositors to withdraw amounts of money (Run On The Bank) that exceed the amount of the real money, the bank soon collapses for the lack of ability to meet customer needs.

The Global Financial Crisis : 

The Global Financial Crisis 2. The Usury Government does intervene to save the bank and back it up by its funds. Governments begin to print and pump money that could match the amount of the virtual money. This leads to massive inflation, decline in prices and weak production and may lead to a huge financial disaster.

The Global Financial Crisis : 

The Global Financial Crisis 3. Breaking away from the Gold Standard (Fiat Currency) Virtual economy would have not become a genuine trend, if the main currency (i.e. Dollar) remained linked to the gold standard as per the Bretton Woods Agreement in 1944. Currency exchange mechanism agreed upon by the allied nations. All ratifying countries’ currencies exchangeable in gold. In 1971, USA had to pay back France a loan of $3bn. France asks the sum in GOLD Nixon says “Screw the French!”

The Global Financial Crisis : 

The Global Financial Crisis 3. Breaking away from the Gold Standard (Fiat Currency) The existence of such a law can not permit any State economy to appear much larger than its real size. There will not be sufficient gold to match the fictitious numbers of the virtual economy. US also broke the link between the value of its currency and the economy. It made it possible for money to grow more rapidly and at much higher rates than the growth of the economy.

The Global Financial Crisis : 

The Global Financial Crisis Conclusion Europe and the US have built their enormous economies on the basis of the virtual economy. These countries cannot go back to rebuild a more realistic economy. The financial politics are based on usury and exorbitant wealth, and the steady increase of the money has become the only goal of their economic and financial policies. They will remain vulnerable to destruction and collapse.

The Global Financial Crisis : 

The Global Financial Crisis Conclusion "Those who devour usury will not stand except as stands one whom the Evil One by his touch hath driven to madness. That is because they say: "Trade is like usury," but Allah hath permitted trade and forbidden usury. Those who after receiving direction from their Lord, desist, shall be pardoned for the past; their case is for Allah (to judge); but those who repeat (the offence) are Companions of the Fire; they will abide therein (forever)." [Quran Chapter 2; verse 275]

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