Financial Repression is Negatively Related to Financial Growth

"The control of credit also has become dangerously centralized. It is the mere truth to say that the financial resources of the country are not at the command of those who do not submit to the direction and domination of small groups of capitalists who wish to keep the economic development of the country under their own eye and guidance."

The fact that banks control 97% of the world's money supply makes them a vital institution. Banks are the engine of our modern financial system and a source for economic growth. The bank's ability to create credit can have destructive effects; the Great Depression of 1929 and the Great Recession of 2008. In both cases, banks spurred on an asset bubble through overextending credit to aid the purchase of assets. The result was an economic collapse that wiped out wealth and reduced credit creation which stalled productive investments. The lessons of the two great economic collapse support the notion proposed by the author, that bank credit for transactions that do not contribute to the economy should be restricted.

This essay, firstly, will look at to what extent physical geography has affected Latin America in terms of economic growth. Secondly, it will focus on the other possible factors which have affected its economic growth. There has been much debate over the cause with some stating that geography is the culprit while others blame more social aspects such as politics and political instability, inequality, and educational attainment. This essay will attempt to evaluate to what extent these claims are true.

International development and underdevelopment are major issues in global society today. John Perkins’ book The New Confessions of an Economic Hit Man is a very critical account on the activities of private corporations such as MAIN and international financial institutions such as the World Bank and the International Monetary Fund and how many actions are based on self-interest, corruption and greed. The book does an exceptional job at giving us an insider’s perspective on why debt induced developing nations are in a constant state of underdevelopment from the corrupt actions of Economic Hit Men and their colleagues Jackals who deal with the dirty side of the business and political economics. Global economics and debt have

A closed economy was once favored as the idea of import substitution industrialization was believed to be beneficial for the growth of Brazil’s state influenced economy. These methods were discarded in support for an open economy and the involvement of the state was diminished through dominating market forces and large scale privatization. The use of neoliberal thinking grew after many people began to realize that import substitution industrialization was not as efficient as once believed. Due to the debt crisis in the 1980’s in Latin America, economies such as Brazil’ struggled to keep a positive capital account so the introduction of multilateral international financial institutions was necessary to deal with the inordinate amounts of pressure Amann and Baer,

For the past two centuries, much of Latin America has struggled to shake the hierarchical capitalist inequities established throughout the colonial period. While the independence movements of the 19th century successfully established national sovereignty, the new governments failed to shatter the export-model which enriched western countries at the expense of the former colonies. This cycle of dependency continued well into the 20th century, until the Great Depression plunged the globe into economic disarray. Spurring discussion about the viability of free-market capitalism, the economic crisis birthed various nationalist movements which attempted to address the structural failures which generated adverse outcomes for Latin America. Leaders

Following a decade of high development thanks to the commodity super cycle, Latin America has lost its glow: economic advancement is near zero, equality gains have slowed down, and the political landscape is changing. Although a few nations have started down the path of structural change required to raise efficiency and competitiveness, it is clear that the recent slowdown of economic progress has made the reform process more difficult. When growth slows or stalls, societies tend to shy away from processes of continual, systematic reform, despite the promise of positive results in the forthcoming time frame. At times of economic instability, the short term rules and attention to the medium/long term fades. Preventing this from happening is the main challenge facing Latin America today.

They explain that during the last half of the nineteenth century, an outward-oriented period of growth started in Latin America, based on the export of raw materials to emerging industrial nations. Unlike the ruling classes in other parts of the world, the so-called oligarchic order in Latin America concentrated the resulting large surplus in the hands of small traditional elites who imitated the consumption patterns of European upper classes, rather than seeking to enhance their countries' education, technology and production infrastructure (Arocena and Senker 2003). In the late 1950s and early 1960s, industrialization failed to reach a point at which it was self-sustaining. While there were plants and factories in Latin America that could produce consumer goods, only a comparatively small wealthy segment of the population could afford to purchase these consumer goods as opposed to the large segment of the United States and West Europe populations. This restricted expansion of the internal market for manufactured consumer durables, and the expansion of manufacturing employment. Accordingly this did little or nothing to reduce inequality. Industrialization produced by inward investment and by internal consumption of expensive products could only be sustained in Latin America in a period when external funding was easy to obtain. This came to an end with the debt crisis of the 1980s. Latin

New financial regulations have been created and existing regulations have been revised in the aftermath of the financial crisis. The role of financial regulatory policy in the financial crisis is sometimes presented in a way that will help the economy improve. Deregulation was an approach that the economy was implementing towards to. According to Kroszner and Strahan in the reading about What Drives Deregulation?, in order to achieve a positive theory of regulatory change, it is crucial for an economy to characterize the regulatory process as one in which “well-organized groups use the power of the state to capture rents at the expense of more dispersed groups.” (Kroszner, Strahan Pp 1438) This suggested that the elimination of restrictions on bank branching will benefit the theories of regulatory change.

Not unlike the political transformations that pepper Latin American history, Latin America experienced several changes in economic systems. Each country possesses its own unique history, however there are several structural similarities that create a likeness across national borders. When examining Mexico, Argentina, Chile and Venezuela one major commonality is the shift from Import Substitute Industrialization to Neoliberal reforms in times of economic downturn. Nevertheless, each country experienced distinctive outcomes placing their economies on different scales of development and stability. To understand how inequality, economic growth and structural independence influence these countries, an examination of each country's major economic

This paper I am writing is concerned with the economic considerations of a South American country and shall analyze the impact of an economic concern as followed on this particular South American country that I have chosen and I will identify the trend of the economic concern with the specified region and basis of data sets that accumulated from the source. The

Over the past several decades the world has seen what the culprits are with financial instability. From the Great Depression, to the housing bubble crisis of 2008, the economy suffers from many fundamental problems that damper our financial situation. In The Bankers’ New Clothes, Anat Admati and Martin Hellwig explain the struggles of banking regulation in order to gain a better understanding of financial intermediation and how it affects us. Admati and Hellwig provide a forceful and accessible analysis of the recent financial crisis and also offer proposals on how to prevent any future financial failures. The way they achieve this is by engaging us, in plain language, by cutting through the confusion and acknowledging the issues of banking.

The US market crash of 1929 affected all Western industrialized countries; however, the repercussions sensed by Latin American countries were quite severe, especially throughout the years to come. The establishment of US investments in Latin America and the exports Latin American countries provided to the US were about to take different paths. During this time, the economic development of most Latin American countries was based mostly on agriculture and mining, but the shift towards structural economic and political strategies had a profound consequence on each one of these country’s economies.

Financial sectors all over the world is going through the process of transformation such as, liberalization, technological innovations and deregulation. The evolving financial system in India has been interlinked with the growth of the macro economics. This change allows financial institutions to bring in assortment of new product and services into the economy. Financial institutions play a prominent role in stimulating the economic growth in a country, they help to mobilize the savings and channelize the funds as investments into the sectors which requires it. Government has played a prominent role in creation and structuring the financial system in the country. The government also controls and influences the flow of credit in an economy and its direction through its fiscal policies.

The purpose of this paper is to show that the “regulatory capture” has played a role not easily measurable in causing the global financial crisis. To illustrate this, the first step will to describe the “regulatory capture” in its three possible qualifications; then, I will explain, providing some examples, how each of these categories played a possible role in posing the basis for the financial crisis. While illustrating the different forms of capture I will present some questions that leave space to different answers. Finally, I will conclude that the regulatory capture have surely played a role in generating the crisis, but it is not possible to evaluate the effective role it had in causing it.