Financial Crises, Global Capital Flows and the International
The recent upheavals in the world financial markets were
quelled by the immediate intervention of both international
financial institutions such as the IMF and of domestic ones in
the developed countries, such as the Federal Reserve in the USA.
The danger seems to have passed, though recent tremors in South
Korea, Brazil and Taiwan do not augur well. We may face yet
another crisis of the same or a larger magnitude momentarily.
What are the lessons that we can derive from the last crisis
to avoid the next?
The first lesson, it would seem, is that short term and long
term capital flows are two disparate phenomena with very little
in common. The former is speculative and technical in nature and
has very little to do with fundamental realities. The latter is
investment oriented and committed to the increasing of the
welfare and wealth of its new domicile. It is, therefore, wrong
to talk about "global capital flows". There are investments
(including even long term portfolio investments and venture
capital) - and there is speculative, "hot" money. While "hot
money" is very useful as a lubricant on the wheels of liquid
capital markets in rich countries - it can be destructive in less
liquid, immature economies or in economies in transition.
The two phenomena should be accorded a different treatment.
While long term capital flows should be completely liberalized,
encouraged and welcomed - the short term, "hot money" type should
be controlled and even discouraged. The introduction of
fiscally-oriented capital controls (as Chile has implemented) is
one possibility. The less attractive Malaysian model springs to
mind. It is less attractive because it penalizes both the short
term and the long term financial players. But it is clear that an
important and integral part of the new International Financial
Architecture MUST be the control of speculative money in pursuit
of ever higher yields. There is nothing inherently wrong with
high yields - but the capital markets provide yields connected to
economic depression and to price collapses through the mechanism
of short selling and through the usage of certain derivatives.
This aspect of things must be neutered or at least countered.
The second lesson is the important role that central banks and
other financial authorities play in the precipitation of
financial crises - or in their prolongation. Financial bubbles
and asset price inflation are the result of euphoric and
irrational exuberance - said the Chairman of the Federal Reserve
Bank of the United States, the legendary Mr. Greenspun and who
can dispute this? But the question that was delicately
side-stepped was: WHO is responsible for financial bubbles?
Expansive monetary policies, well timed signals in the interest
rates markets, liquidity injections, currency interventions,
international salvage operations - are all co-ordinated by
central banks and by other central or international institutions.
Official INACTION is as conducive to the inflation of financial
bubbles as is official ACTION. By refusing to restructure the
banking system, to introduce appropriate bankruptcy procedures,
corporate transparency and good corporate governance, by engaging
in protectionism and isolationism, by avoiding the implementation
of anti competition legislation - many countries have fostered
the vacuum within which financial crises breed.
The third lesson is that international financial institutions
can be of some help - when not driven by political or
geopolitical considerations and when not married to a dogma.
Unfortunately, these are the rare cases. Most IFIs - notably the
IMF and, to a lesser extent, the World Bank - are both
politicized and doctrinaire. It is only lately and following the
recent mega-crisis in Asia, that IFIs began to "reinvent"
themselves, their doctrines and their recipes. This added
conceptual and theoretical flexibility led to better results. It
is always better to tailor a solution to the needs of the client.
Perhaps this should be the biggest evolutionary step:
That IFIs will cease to regard the countries and governments
within their remit as inefficient and corrupt beggars, in
constant need of financial infusions. Rather they should regard
these countries as CLIENTS, customers in need of service. After
all, this, exactly, is the essence of the free market - and it is
from IFIs that such countries should learn the ways of the free
In broad outline, there are two types of emerging solutions.
One type is market oriented - and the other, interventionist. The
first type calls for free markets, specially designed financial
instruments (see the example of the Brady bonds) and a global
"laissez faire" environment to solve the issue of financial
crises. The second approach regards the free markets as the
SOURCE of the problem, rather than its solution. It calls for
domestic and where necessary international intervention and
assistance in resolving financial crises.
Both approaches have their merits and both should be applied
in varying combinations on a case by case basis.
Indeed, this is the greatest lesson of all:
There are NO magic bullets, final solutions, right ways and
only recipes. This is a a trial and error process and in war one
should not limit one's arsenal. Let us employ all the weapons at
our disposal to achieve the best results for everyone
About The Author
Sam Vaknin is the author of "Malignant Self Love - Narcissism
Revisited" and "After the Rain - How the West Lost the East". He
is a columnist in "Central Europe Review", United Press
International (UPI) and ebookweb.org and the editor of mental
health and Central East Europe categories in The Open Directory,
Suite101 and searcheurope.com. Until recently, he served as the
Economic Advisor to the Government of Macedonia.
His web site: http://samvak.tripod.com
MORE RESOURCES updated Sun. August / 20 / 2017
View from London: Euro/Yen Among Currency Trading PuzzlesMoneyshow.com (registration)The break of 110 in USD/JPY leaves the 130 break looking more interesting in the cross and suggests 127.50 is the next big level to watch – an indicator of the path chose by investors, writes Bob Savage, CEO of Track Research in Wednesday commentary ...and more »
A Look at Forex Market
The investor in the currency market takes for granted that
a pair of currencies can be bought or sold at a moment's
notice. Once an order is placed with a broker, the trade is
executed within seconds.
A Look at Online Forex
An online forex broker is a firm that facilitates retail
trading using Internet technologies. Global Forex Trading
(GFT), one of the popular online forex brokers.
I read on a bulletin board a traders comment that on his
first outing trading the E-Mini S&P 500 he lost on each
of his trades. He noted though, that had he had a wider
stop each of his trades would have been profitable and that
therefore he would be trading with a wider stop in future.
How to Trade
We all know when you go on a trip to another country; you
need to take some travelers checks and some cash in the
currency of that country. This can be advantageous because
one country's currency is usually worth more or less than
Internet and Computer
Systems in the FOREX Business
With every passing year the interest in electronic trading
is bigger, more especially trading shares and currency
through Internet. A new profession came forward - this of
the currency dealer.
What are Your Options
Regarding Forex Options Brokers?
Forex option brokers can generally be divided into two
separate categories: forex brokers who offer online forex
option trading platforms and forex brokers who only broker
forex option trading via telephone trades placed through a
dealing/brokerage desk. A few forex option brokers offer
both online forex option trading as well a
dealing/brokerage desk for investors who prefer to place
orders through a live forex option broker.
A Fools Game
I received an email this week with a question (below) which
caused me to think about the wisdom of pursuing trading as
a career. Regardless of your trading time span, the skills
and concerns of active short-term trading are relevant to
all market particpipants.
Commodity Trading -
Advantages and Disadvantages
What Is Commodity Trading? Commodity futures markets allow
commercial producers and commercial consumers to offset the
risk of adverse future price movements in the commodities
that they are selling or buying. In order to work a futures
contract must be standardized.
Be a Smarter FOREX
Currency Trader: Three Basic Principles
Below I will describe three basic principles that may come
in handy for currency traders. They are very easy to
implement and potentially take advantage of as you will
Online Futures Trading -
Advantages and Disadvantages
What Is Online Futures Trading?A futures contract is an
agreement to buy or sell a commodity at a date in the
future. Everything about a futures contract is standardized
except its price.
Day Trading Training ...
You need more than just going to a free stock market
workshop to learn
Day trading is all about making buy and sell decisions.
When you make a trade either your going to lose money or
your going to make money, and some other times you will
A Short Introduction To
FOREX is the world's largest and most liquid trading
market. Many consider FOREX as the best home business you
can ever venture in.
Options Trading -
Advantages and Disadvantages
What is Options Trading?An option is simply granting
someone the right to buy or sell something in the future.
In the case of Dow index futures options, when someone buys
a Dow call option they are buying the right to purchase
that underlying Dow future at a specific price, known as
the "strike price," at a future point in time, known as the
Day Trading Success- The
Key Is Survival
Most new traders tend to focus just about all their time
and energy on finding nearly perfect "setups", but trade
setups, even very good ones, are *not* the key to
successful trading. It's the *way* you trade your setups
that keeps your losses smaller than your gains.
Types of Foreign
Currency Hedging Vehicles
The following are some of the most common types of foreign
currency hedging vehicles used in today's markets as a
foreign currency hedge. While retail forex traders
typically use foreign currency options as a hedging
Welcome to the World of
Indeed large multinational and individual banks and other
major financial institutions have dominated FX trading
(also known as Forex trading), but there is a paradigm
change in the nature and type of investing. According to
one estimate, in the new millennium, there are over 6
million online investment accounts, up from 1.
Is The U.S. Dollar About
To Reverse Course?
For the first time in several years the U.S.
Hedging Foreign Exchange
The exchange rate of the Macedonian Denar against the major
hard currencies of the world has remained stable in the
last few years. Because of the IMF restrictions, the local
Narodna (Central) Bank does not print money and there are
no physical Denars in the economy and in the local banks.
Choosing A Forex
With currency trading becoming ever more popular, the
number of brokers is growing at a rapid rate. What should
one look at when deciding which broker to open an account
with? These are the important points to consider.
Where to Get Forex
For those of you who are interested in forex trading, you
may want to start off by getting some good forex training.
Forex training is a necessity for anyone with this
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