BBC History Magazine

Financial crisis glossary

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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.

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