Argentina Crisis Related to Greece's Case

These actions led to the fall in prices of securities. Loans were liquidated and borrowing from banks and other lenders became difficult. Interest rates would rise rapidly and sharply. This type of financial hardship led to the liquidation of bank credit. Over a long enough span, this liquidation would lead to money crises (Federal Reserve System 5th ed pp. 10-11).

The financial and banking crisis of the Twentieth Century in America caused major concerns. The main problem afflicting the system was that the money supply was not sufficiently responsive meaning it was difficult to shift currency around the country to respond quickly to local economic changes. Rumors that a bank had insufficient currency to satisfy demand for withdrawals would quickly lead to a bank run. A bank run then will, set a panic

This epidemic is the spread of market downside from country to country and is a spill-over effect that is influenced by the agents’ four behaviors which are governments, financial institutions, investors, and borrowers. Financial contagion happens to both advanced economies and developing countries and causes financial volatility. It affects countries capital flows, exchange rates, and stock prices. The contagion contains problems such as irrational phenomena, macroeconomic shocks that cause local shocks passed through competitive devaluations, trade links, and financial

The situation led to the surging inflation cases in the country, lack of capital finances to support new business startups, recession/depression, and unemployment since most companies laid off their employees after closing down their businesses. Consequently, the situation spread all over the word with most governments forced to intervene and bailout some of their financial institutions to manage the crisis. In the American context, what worsened the situation was high expectation of the mortgage lenders who expected huge profits from their clients after full recovery of the loans.

The withdrawal of the liquidity could have caused a misunderstanding. In addition, there were also random events as well as economic conditions, which made people to begin hoarding cash (Bernanke, 2000). As such, the ultimate source of the fragility of the role of the financial institutions. In the end, financial obtained most of the funds from short term loans and then the funds were given out in the long-term. In addition, the business models of the financial institutions made an assumption that the depositors will on average deposit the money in banks; hence as some customers withdraw their money, the funds would be replaced by bank deposits by other customers. As such, the financial institutions, especially the banks could have a permanent pool of replaced money by the bank deposits. Such as in case a run occurred, a financial model would be

In December 2015, Argentina’s newly elected “Cambiemos” party (Lets Change) announced it planned on lifting all restrictions on capital flows, allowing practically unlimited access to foreign currency in a process intended to push the peso’s value to float towards its true market value. The move to liberalize capital flows was a desperate attempt to increase exports and spur economic growth in an economy that has been battling low foreign reserves and double-digit inflation for the past several years. The free-market candidate, Mauricio Macri, was determined to restore investor confidence in Argentina, utterly destroyed by its 2002 record default, a lack of transparency in its economic institutions, and heavy state intervention. With the backing of big business, both domestic and foreign, Macri was able to mobilize a dissatisfied middle-class tired of the leftist protectionism of the past decade. The economic reforms came at a time of extreme political polarization and civil unrest in Argentina. The Peronist candidate, Daniel Scioli, lost by a very slim margin, leaving the opposition eager to utilize any economic setbacks as political ammunition. For many Argentines, Macri’s neoliberal plans sound awfully reminiscent of the disastrous policies implemented by Carlos Menem in the 1990s. Given the population’s low tolerance for austerity measures and a ferocious opposition watching every move, Macri’s must walk a tight line if he is to successfully tackle Argentina’s economic

The financial crisis of 2007-2008 had more sounding effects on financial institutions even greater than the crisis brought about by the stocks downfall in the 1990’s. The reason for this is that the financial institutions were at the centre of the whole crisis. And financial institutions being one of the key pillars in a country’s economy, the crisis was bound to have a big effect in US as a whole. So, in order to understand what rely happened, it is wise to go through the paper written by Nicholas Barberis about the whole crisis (Barberis, 2011).

Following a steep currency devaluation and the largest sovereign debt default in history, Argentina entered a deep recession with high unemployment and social upheaval

institution, leading to a major contraction in liquidity available. This transmitted throughout the rest of

❖ Late 2009, fears of a sovereign debt crisis developed concerning some European states. Sovereign debts (Gov’t debt) externally issued rose sharply due to numerous bank bailouts.

Thus, the banking system had to continuously roll over (renew) their short-term liabilities until their long-term assets fully matured. If an event arose whereby Icelandic banks failed to find new borrowers to continue rolling over their liabilities, they could face a liquidity crisis and, more importantly, spark the collapse of the Icelandic financial system; recent events have borne out this exact scenario.

In examining the economic crisis Greece has faced over many years, it is interesting to focus on the time period from 2012 leading up to present day. Many aspects brought the economy to its current day situation. Focusing somewhat on the past could offer information about the causes of the dire situation and what has not worked in improving the conditions the country is facing. This introspection could offer information and provide options moving forward to enable the country to function in a healthier capacity.

Under similar duress, there exists the risk of a severe dislocation of global financial markets; due to the failure of a parent bank for example. Such a disruption would lead an economic environment of increased risk aversion and stress, ultimately followed by bank deleveraging. In this environment the price of risk assets, such as equities and property, would decline inciting a further decrease in confidence and engaging in a spiral of negative feedback. As conditions worsened, the decrease in confidence would thus cause negative wealth effects and drop in both consumer and business spending. In order to prevent the occurrence of such adverse circumstances, officials should focus of the provision of liquidity through preexisting facilities.

One project of the International Monetary Fund was a series of loans given to the country of Argentina in the 1990s through 2001. In the 1990s many investors and brokers looked to Argentina for investments as they rated its economy as one of the world 's strongest (Blustein, 2003, Aug 3). It was at this time that Argentina first started to follow the International Monetary Fund formula for economic stabilization in development including reducing budget in balance of payment deficits, raising interest rates, reducing inflation, privatizing state assets, and reducing trade barriers and regulation on capital flows in and out of the country (Paddock, 2002, p. 158). These policies helped reduce the hyper-inflationary levels that Argentina had reached during the 1980s. This positive outlook may have prevented a needed change in the economic policies when the effects of the Mexican peso crisis in 1995 placed Argentina 's economy in a brief recession. It wasn 't until 1998 that Argentine policymakers discussed the country 's finances with a senior official of the International Monetary Fund who sounded the alarm that the country might be headed for an Asian style melt down. However despite the warning significant economic changes were not made, in part due to the confidence that money could be easily acquired from the International Monetary Fund (Blustein, 2003, Aug 3). In 1999 the financial

The purpose of this study is to analyze the nature of this crisis and to propose some short-term as well as long-term solutions to this problem.