tag:blogger.com,1999:blog-53013852678404143142024-02-08T19:11:51.375+01:00Why this economic crisis?Economic crisis made plain simple.C. Brownhttp://www.blogger.com/profile/09393798703519506873noreply@blogger.comBlogger3125tag:blogger.com,1999:blog-5301385267840414314.post-54149590484187203562011-12-03T17:39:00.001+01:002011-12-03T22:04:21.253+01:00Where does government debt come from?Government debt arises as a result of the issue of <b>government bonds</b>.<br />
<u>Government bonds are issued by a country in order to finance investments without raising taxes</u>. In principle, that's a smart idea, if you think about it.<br />
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That's how it works (simple case): Government issues bonds at 95$ today promising it will buy them back the following year at 100$. The difference between the two numbers (100-95=5$) is the <b>interest</b>, which, if divided by the issue price, reveals the <b>interest <i>rate</i></b> (5/95=5,26%).<br />
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Everyone can buy government bonds: banks, companies, but also ordinary people like you and I.<br />
Bond subscribers therefore <i>lend</i> money to the state and become <i>creditors</i>. Government, on the opposite, contracts a <i>debt</i> that must be paid for in due time.C. Brownhttp://www.blogger.com/profile/09393798703519506873noreply@blogger.com0tag:blogger.com,1999:blog-5301385267840414314.post-62708627079694016382011-11-25T15:37:00.001+01:002011-12-03T17:38:16.326+01:00Why this economic crisis then?The reason behind the crisis we are all enduring today is essentially one: <b>debt</b>. In particular, <b>government debt</b>.<br />
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In the past, economists like <a href="http://en.wikipedia.org/wiki/Keynesian_economics" target="_blank">John M. Keynes</a> promoted the idea that governments should encourage private investments during economic slumps in order to avoid recessions.<br />
How?<br />
By giving companies generous loans at cheap interest, that is, cheap price, which can be paid back once the economic slump is over.<br />
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At a first glance, there seems to be no danger at all in this procedure. History, however, has proved the opposite.C. Brownhttp://www.blogger.com/profile/09393798703519506873noreply@blogger.com0tag:blogger.com,1999:blog-5301385267840414314.post-90814806940613200622011-11-24T14:32:00.000+01:002011-11-24T14:32:24.722+01:00Why this economic crisis by the way?This blog, like most others, has been created to satisfy a personal need. The need to inform people about complicated matters by using straightforward concepts.<br />
It is important, especially in difficult times, that things are understood as they are, plain and clear. Regrettably enough, what many people fail to conceive is that, <u>sometimes, the explanation of a very complicated question is indeed very simple</u>.<br />
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<i>I have the presumption to say that this is the case of the financial crisis that is currently spreading throughout the world.</i><br />
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On one hand, it would be too naive to pretend that a simple explanation will also be exhaustive; on the other, someone more knowledgeable than me noticed that, most of the times, roughly <a href="http://en.wikipedia.org/wiki/Pareto_principle" target="_blank">80% of the effects come from 20% of the causes</a>.<br />
This is the line I want to follow. This is the line I want you to discover. Because Economics is not just for economists: Economics is for everyone.C. Brownhttp://www.blogger.com/profile/09393798703519506873noreply@blogger.com0