Fi­nan­cial cri­sis glos­sary

BBC History Magazine - - The Credit Crunch -

As­set mar­kets re­fer to classes of as­sets – houses, eq­ui­ties, bonds – each of which is traded with sim­i­lar reg­u­la­tions and be­hav­iour.

Debt-de­fla­tion is the process by which, in a pe­riod of fall­ing prices, in­ter­est on debt takes an in­creas­ing share of de­clin­ing in­come and so re­duces the amount of money avail­able for con­sump­tion.

The Gold Stan­dard fixed ex­change rates by the amount of gold in their currencies. As a re­sult, it was not pos­si­ble to vary ex­change rates to solve a bal­ance of pay­ments (the dif­fer­ence be­tween pay­ments into and out of a coun­try) deficit, and in­stead costs were driven down and com­pet­i­tive­ness re­stored by de­fla­tion­ary poli­cies.

The In­ter­na­tional Mon­e­tary Fund is an or­gan­i­sa­tion cre­ated in 1944 which now con­cen­trates on struc­tural re­form of devel­op­ing economies and re­solv­ing crises caused by debt.

Macroe­co­nomics refers to the be­hav­iour and per­for­mance of the econ­omy as a whole, by con­sid­er­ing gen­eral eco­nomic fac­tors such as the price level, pro­duc­tiv­ity and in­ter­est rates.

Mon­e­tary pol­icy uses the sup­ply of money and in­ter­est rates to in­flu­ence eco­nomic ac­tiv­ity. This is in con­trast to fis­cal pol­icy which de­pends on changes in tax­a­tion or gov­ern­ment spend­ing.

Mu­tu­al­i­sa­tion of debt en­tails mov­ing from a gov­ern­ment bond that is the re­spon­si­bil­ity of a sin­gle mem­ber of the eu­ro­zone to make it the joint re­spon­si­bil­ity of all mem­bers.

Petrodol­lars are the dol­lars re­ceived by oil pro­duc­ers. Par­tic­u­larly after the in­creases in prices dur­ing the oil shocks of 1973 and 1979, and again after 2003, their earn­ings – the petrodol­lars – led to the growth of in­ter­na­tional fi­nan­cial flows through com­mer­cial banks.

Quan­ti­ta­tive eas­ing is the process by which a cen­tral bank pur­chases gov­ern­ment bonds and other fi­nan­cial as­sets from pri­vate fi­nan­cial in­sti­tu­tions. The in­sti­tu­tions sell­ing as­sets now have more money and the cost of bor­row­ing is re­duced. In­di­vid­u­als and busi­nesses can bor­row more, so boost­ing spend­ing and in­creas­ing em­ploy­ment – though it is also pos­si­ble that, when this process was em­ployed, money went into buy­ing eq­ui­ties, so boost­ing the gains of richer peo­ple.

Re­fla­tion refers to the use of poli­cies that are em­ployed to boost de­mand and in­crease the level of eco­nomic ac­tiv­ity by in­creas­ing the money sup­ply or re­duc­ing taxes, and so break­ing the debt-de­fla­tion cy­cle.

Sec­u­lar stag­na­tion de­scribes a long pe­riod of no or very slow growth in con­trast to a short-term cycli­cal down­turn. It as­sumes that the econ­omy is trapped by a lack of de­mand and fails to achieve full em­ploy­ment.

Sov­er­eign debt is the debt of na­tional govern­ments, with in­ter­est and re­pay­ment se­cured by tax­a­tion. If debt was too high, the coun­try might de­fault. This be­came a risk in 2010, above all in Greece.

Newspapers in English

Newspapers from UK

© PressReader. All rights reserved.