Skip to main content
main-content

Über dieses Buch

This book aims to explore stability in an international financial system using disequilibrium theory. It examines historical cases of both instability and stability and reviews price-disequilibrium theory to construct a theoretical model for a stable international financial system.

In the modern knowledge economy in a global world, financial socio-technical systems still continue to be central to global commerce. Moreover, technological advances in computer and communications have changed both the knowledge economy and the financial system. While globalization and technology have made international finance more powerful and important to knowledge economies, they have also increased the volatility, instability, and fraudulent use of international finance. The international world has not experienced a long-term, stable financial system after 1913. International financial systems have been periodically unstable, triggering financial crises and resultant economic depressions in different nations. Yet the global economy cannot develop properly without a stable international system, which distributes wealth to economically productive activities. How then can a stable and modern international-financial-system be constructed? In this provocative volume, the authors applies the cross-disciplinary analysis of societal dynamics to important economic writers to derive a new approach to the problem of stabilizing international financial systems.

Inhaltsverzeichnis

Frontmatter

Chapter 1. Price Disequilibrium Theory

Even in the modern ‘knowledge economy’ in a global world, financial systems still continue to be central to global commerce. Technological advances in computer and communications have changed both knowledge and the economy and also the financial system. Globalization and technology have made international finance more powerful and important to the world; but they have increased volatility, instability, and fraud in international finance. For example, Martin Wolf wrote: “It is possible to identify … two huge shifts (in the economy). One is ‘liberalization’, the reliance on market forces across much of the world economy, including and notably, in finance. A second is ‘technological change’, in particular the information and communications technology revolution, which turbocharged the integration of economies, again, quite particularly, financial markets …. These great shifts of our time have permitted or created significant further changes. Among the most important have been: the emergence of a globalized world economy; soaring inequality in most economies; the entry of gigantic emerging economies (e.g., China and India) …, In brief, we have a world that is in the midst of historic shifts towards a more market-oriented, financially driven and globalized world economy …. It is a world that has seen downward shocks to the rate of inflation. It is also, it turns out, a world that is hugely crisis prone.” (Wolf 2014)
Frederick Betz

Chapter 2. International Grid of Capital Flows: Innovation, Crisis, and Off-shore Banking

Disequilibrium financial markets are now embedded in international financial networks, which direct the flow of capital around the world. These international cash flows are involved in the process of international banking; and the modern technologies of information and communications (IC) have increased the speed, volume, and complexity of international flows. But at the end of the twentieth century, the global world began to experience destabilizing international flows—particularly in the Asian financial crisis of 1997, Global financial crisis of 2007, and Euro crisis of 2010. In using the IC technologies, how has international banking increased the frequency and intensity of international financial crises?
Frederick Betz

Chapter 3. Dynamics of Government Fiscal Instability

Not only can stock markets crash in financial bubbles, nations also can collapse in government fiscal bubbles. How did the financial grid assist in making a national fiscal crisis deeper? As previously noted, international investment banking assisted Greece in hiding the size of it national debt. How did the continuously increasing debt finally trigger a fiscal crisis in Greece, depressing its economy and destabilizing governments?
Frederick Betz

Chapter 4. Public and Private Debt Markets in Disequilibrium Theory

We have modeled how financial markets trading capital assets can go into price disequilibrium and create financial bubbles. We next modeled how within an international financial grid, investment banks create the financial products of a financial market. And we saw how the unregulated networks in the grid produce and sell financial products of questionable quality and little public good. Next we modeled how the sovereign bonds of Greek nation went into price disequilibrium, triggering a financial crisis in Greece and a subsequent depression lasting over 5 years. But at the same time of the fiscal crisis in Greece, a fiscal crisis occurred in Spain. And after 2010, Spain’s fiscal crisis was solved but Greece’s was not solved. Why the difference between Spain’s solution and Greece’s lack of solution to their fiscal problems? It had to do with the different market sources of the crises, a private-debt market in Spain and a public debt-market in Greece.
Frederick Betz

Chapter 5. Why ‘Austerity’ Failed in Greece: Testing the Validity of Macro-Economic Models

Models have always been important to informed policy making. In the formulation of policy, models can provide information about the situation and the problem which a policy intends to address; and in the execution of policy, models can provide information about the consequences (and unintended consequences) of a policy. Models are used for the formulation and assessment of policies, as in Fig. 5.1. Each model has a specific form, specific dynamics, specific content, and specifically formatted data input and information output.
Frederick Betz

Chapter 6. Financial Hegemony: Dutch Republic

We have been examining the theory of instability in financial markets. Instability arises from the time dimension in financial markets—which allows for both current rents and future liquidity, in valuing the capital assets traded in a market. Since the value of a capital asset continues over time from purchase at time T1 to sale at T2, profitability can be increased by using debt to purchase the asset. The percentage of the purchase price financed by debt is called ‘leverage’; and the higher the leverage the greater the profit. This allows ‘speculation’ in trading in the market, using higher and higher leverage to drive up the prices of assets in a ‘hot’ market. As speculators move from financing the purchase of an asset with conservative leverage to speculative leverage to Ponzi leverage, the financial market moves into a financial bubble, bursting in the ‘Minsky moment’ of Ponzi leverage. Leverage in private markets creates instability in stock and real estate markets; and leverage in government budgets creates national fiscal instability.
Frederick Betz

Chapter 7. Financial Hegemony: British Empire

There is a second example in economic history of hegemony in international finance. After the Dutch Republic established a liberal hegemony in finance in the 1600s, they were replaced in the 1700s by the British Empire, which provided as subsequent stable financial system for international trade. Andrew Sobel wrote: “The British gradually replaced the Dutch as the commercial and financial hegemon, emerging at the center of the global political economy by the middle to late 1700s. The transition was relatively peaceful, at least between the Dutch and the British. The movement of surplus Dutch capital and Dutch financial skills and innovations to the financial markets in London were important contributors to London’s becoming the preeminent international financial and commercial center. The baton of global leadership passed gradually during the 1700s, and British hegemony lasted until the First World War.” (Sobel 2012)
Frederick Betz

Chapter 8. Design of an International Central Bank

What kind of international structure could properly regulate the whole of the international financial grid? We analyze whether and how such a proper banking institution might be an international central bank which regulates national central banks. Then we compare this ideal model to the present reality of the European Central Bank and the Bank of International Settlements.
Frederick Betz

Chapter 9. Gaming-the-System

Even good people get tempted. The basic truism about any financial system is that’s its about money; and the truth about money is that there will always be people to cheat, to steal it. Money is the repository of wealth and what better to steal—than money? This is why financial systems must be regulated. Financial systems are temptations to theft and corruption, which do not contribute to the public good due to a lack of proper regulation. We saw in the model of the international financial grid that abuse of financial integrity is deep, widespread, and costly to the public good. We conclude this book with examining cases of theft—individual corruption and institutional corruption—the case of Libor in the twenty-first century and the case of the South Sea Bubble in the eighteenth century.
Frederick Betz

Chapter 10. Riding the Bubble

What we have reviewed are several ways a banking system can be abused in financial transactions with some private good but no public good. Private good is when some economic agents earn wealth; and public good is when private gain benefits the whole society as well. Abuses of the public good occur in two kinds of banking corruption, individual corruption and institutional corruption. The case of Libor was deliberate corruption of the index by a group of individual traders, lying about the index. The case of mortgage securitization in the 2007–2008 Wall Street collapse was deliberate corruption by investment banking institutions, selling off rents from capital assets and thus destroying their future liquidity (toxic assets).
Frederick Betz
Weitere Informationen

Premium Partner

BranchenIndex Online

Die B2B-Firmensuche für Industrie und Wirtschaft: Kostenfrei in Firmenprofilen nach Lieferanten, Herstellern, Dienstleistern und Händlern recherchieren.

Whitepaper

- ANZEIGE -

Blockchain-Effekte im Banking und im Wealth Management

Es steht fest, dass Blockchain-Technologie die Welt verändern wird. Weit weniger klar ist, wie genau dies passiert. Ein englischsprachiges Whitepaper des Fintech-Unternehmens Avaloq untersucht, welche Einsatzszenarien es im Banking und in der Vermögensverwaltung geben könnte – „Blockchain: Plausibility within Banking and Wealth Management“. Einige dieser plausiblen Einsatzszenarien haben sogar das Potenzial für eine massive Disruption. Ein bereits existierendes Beispiel liefert der Initial Coin Offering-Markt: ICO statt IPO.
Jetzt gratis downloaden!

Bildnachweise