I agree with Carmelo Ferlito note, that I suppose is quite near to the Schumpeterian analysis you may find in Business Cycles: the structural economic dynamics is always at the beginning of a major financial crisis. In a certain sense it is also at the beginning of the 2008 financial crisis, that - IMHO - cannot be understood without considering the ICT technological revolutions in the '90s which have addressed increasing amount of liquidity in financial markets.

No! And believing so would be a fatal error. One too often made in the past: the next crisis will have the same cause as this one, s we'll be okay! Wrong....

The current UK crisis is about retailers and the main street shops they occupy all over the country. They're going bankrupt, making 10s of 1000s unemployed, emptying their shops, putting the owners of the shops under great financial pressure. Smaller businesses lose business as few shoppers come by. Why? More and more people shopping online....

I don't say this is a real economic crisis, or an international problem. But it just goes to show the problems with economic prediction!

Christopher NOCK

Christopher, thank you very much for your answer, very interesting. You have made me thinking "in small, not big". Indeed, regarding retail trade, the crisis, with economic consequences, and which you describe in the UK, is also present in my country, because this is a change in the consumer purchasing model.

Well, that's even more interesting! I wasn't aware it was a problem elsewhere. It would be nice to know how widespread the problem actually is. Would you be happy for me to ask that question here on RG?

NOCK

The question is whether ALL economic crises...

Certainly not ALL, we should not generalise it. There are two quite appealing theories proposed by Mishkin and Minsky. New proposals come from the theory of chaos, the theory of complexity (Self Organised Complexities).

The industrial civilisation is shrinking and it is being replaced with post-industrial (internet, information) civilisation economically unstable. Nearly all forms of business activity have become unstable, unsustainable, their life cycles shorter and shorter. In the course of the last 30 years there were over 100 banking crises.

However, I claim that the current Global Crisis isn't a typical short-term economic crisis but a fundamental, systemic crisis of the mainstream economy -neoliberalism. Currently we are witnessing anti-globalism and protectionism. Better late than never.

Wall Street players and a lot of pundits would naturally wish that everything good or bad originated from finances, from them, placing themselves near divinity, enhancing their appetite for risk and especially for earning ever-growing money for their divine deeds, no matter what direct impact it may have on people's lives.

It is possible to make a crisis with forex manipulation. Vide Turkey today, or Russia in 1998. But finances are not the causes of ALL crises.

Unfortunately, I know no-one capable of predicting dire straits which means that picking single or looking for simple causes borders on triviality or is a monger's guess. Economic systems have become far too complex for mere economists to handle the most challenging problems. They insist on denying it. Together with the mainstream media we are being programmed to still believe illiterate economists, proud lawmakers, corrupt lawyers, rich businessmen, cheating businesses and politicians in power.

Thank you very much Paul for your response that provides very interesting points of view.

No, just look at Venezuela.

What would you blame for the Venezuelan crisis?

NOCK

Anti-market stance, centralization, lack of respecr for contracts, appropriations. Socialist policies - answering original question - nothing to do with banks. Not trying to have a political discussion

Well, I'm not sure you can avoid political discussion in the Venezuelan case! It's pretty clear that American interference since the Chavez days has played its part, as it always does in South America.

NOCK

The impact of politics especially in the 3rd World Economies cannot be ruled out. Political system is everything. Cases for countries like Nigeria are leadership problems in the political arena and that has affected the economy and the social life. The efforts of the monetary policy makers are not rewarded because of problems in the political arena. There is no fiscal discipline due to political/leadership problems. Fiscal policies are not supporting the monetary policies. Will this affect surrounding economies, possible yes because of the size of the economy of Nigeria, but will it dovetail to global problem, I do not think so. What of corruption? Is it only in the Financial system? No. It is very much a big problem.

What of countries like Indonesia, Venezuela, etc? Are their problems unique? I do not think so. Are the big economies insulated from these? Varied problems could cause economic crises in different economies. Not just the financial system.

Yes, they will and always have been: the unnatural financial system (and the unnatural money rate of interest) produces crisis every certain time. The symptoms look different but have the same cause. Politics reacting on symptoms do not save the underlying cause. Look here:Article The Central Bank’s dilemma, the Inflation-Deflation Paradox ...

No. Economic crisis can arise even from natural occurrences, extreme bad political governance that trigger wars, terrorism etcetera. Therefore, it is not in all cases that financial crisis will lead to macroeconomic crisis.

Extreme bad political governance in my point of view are also only a reaction on the crisis and symptoms that are produced regularly by our financial system: hyperinflation, deflation, price bubbles, over indebtedness. Since it is not understood that these are regular occurrences meanwhile money is storable (and therefore the money rate of interest exists as liquidity prime), politicians listening to their economic advisors will take wrong decisions, combating symptoms instead of the root of the crisis.

Yes, Felix you are absolutely correct. May be this factor was omitted in my earlier submissions. The international society is aware that extreme bad political governance, marginalization, tribal sentiment or sectionalism have caused wars in different climes. In deed, bad political governance is largely responsible for under-development, poorly performing economies. I will avoid to cite some countries as good examples. This topical issues do not require sophisticated research models in rationalizing the impact of bad governance and its consequence to economy (macroeconomic crisis)

Political instability, leadership problem and mismanagement of the economy are key issues that affected Nigeria badly. So not necessarily financial crisis. If you can recall in the early 1970s a Nigerian Head of State said Nigeria problem was not money but how to spend it. The country was blessed with alot of natural resources that brought alot of revenue to the government but it was mismanaged. The same thing recently under the last political regime where the country earned several billions of dollars and money cannot be account for till date. So Nigeria economic crisis is not due to financial crisis but mismanagement.

Alhaji Muftau, You seem to have gone far to some extent. The Nigerian Head of State at that time of launch of the period the 2nd or 3rd National Development Plan appeared to have been quoted out of context. I read that document, and the then leader intention was more about the resource capacity of Nigeria to generate enough cash flows for the execution of that plant. This was at the inception of the first oil revenue boom, anyway.

Returning to the core issue. I completed a research - an elaborate one for that matter entitled "Measuring Financial Stress (Distress) on Government Financial Performance last year with view to determine whether Nigeria's sovereign treasury or otherwise. Surprisingly, the composite financial health index for Nigeria showed that the Nigerian federal treasury is solvent and not distressed even at the heat of a four year period of recession. In fact, that research was conducted because Nigeria had experienced acute liquidity in late 1970s to 1984; 1985 - 1992 and 2013 / 2014 - 2017. The major cause of Nigeria's macroeconomic shocks is over-dependence on mineral resource (oil) revenues. The nation's economy seem to be strong, given it vast economic resources but you can expect some measure of improvements in management of resources. Thank you

Hi everyone

I think everyone has drifted away from the main crux of the question asked, which in my understanding is: whether there is a causal dependence between economic crises and financial crises, or vice versa.

The answer is Yes. This is because the economic system is kept running by the financial system, since the financial system is the only system that allocates savings to the real sector for investment in the real sector. For this reason, you cannot have economic stability without financial stability, and cannot have economic instability without a corresponding measure of financial stability

Basically, an economic crises starts when abnormal disruptions in the financial systems spreads and cripples the real sector (including main street retailers, and small shops on the streets). When income distribution is disrupted and does not reach the hands of low- and middle-income individuals, they won't be able to buy consumer goods from retailers, hence businesses will begin to fail and close down. Hence this kind of economic problem is also dependent on the financial system because income distribution is made possible through existing financial systems (i.e. banks and other financial institutions)

For this reason, no serious economist would think that economic systems and financial systems are inseparable.

But, can a crisis be purely economic, not financial? Yes, only if the economic crises affect the real sector but not banks and key financial institutions. By economic, I mean the inability to produce and distribute goods and services.

But, can a crisis be purely financial, not economic? Yes, only if the crisis directly affects only financial institutions but not the real sector. By economic, we mean the inability to produce and distribute goods and services.

Finally, the argument for political instability as a cause of economic or financial crises is not a strong argument. Because many countries are politically unstable and still have stable economic and financial systems e.g. South Africa, Cuba, Brazil, etc. While some politically stable countries still experience financial/economic/debt crisis e.g. Greece in 2014, Nigeria in 2016.

I would apply caution on the view that economic crises do not have its origin in financial crises, because indeed it does.

Hope this helps

Regards

Peterson

Untrue and an inappropriate commentary. I guess that the last commentator is attempting economist thinking of "the on the other hand or side). Invoking the argument of casual dependence into this discourse will amount to muddling up issues. Both financial crisis and macroeconomic crisis can blow national economy apart. Financial crisis may flow from banking sector's instability - pushing excessive credit money into the market, huge loan losses as it was the case of US economy, externally induced financial crisis etc. Like already identified, macroeconomic crisis may occur as a result of excess money supply from resource (mineral commodity exports), or poorly managed economy ( in some African countries) or outright bad management or political crisis. It is the same way sporadic - fast rising inflation can rupture the financial system to cause fiscal crisis that liquidity in public treasury may lead to economic crisis. You can expand is logic to consider a situation where a nation is in a debt-trap and its foreign trade partners, other countries and banks decline to lend in such economy - there will be financial and economic crises. The Nigerian experience we mentioned earlier was mere digression

There is a theory that links economic systems to financial systems, which is the reason why it is important to view this question from the dependence perspective, maybe causal or non-causal.

The author of the question is right in thinking that there is some dependence. This dependence may be implied or non-causal, but such dependence does exist nonetheless

Political factors are important where there is no adherence to the rule of law. But the economic theory literature does not recognise political factors as a stand-alone predictor of economic crises.

Economic systems to financial system and the theory explicitly postulate that economic crisis depend on financial crisis or is it financial crisis depend on economic crisis. Hummm, economic - macroeconomic crisis to my mind, tend to be larger than financial crisis in most cases but either of the two can cause devastating effect on an economic jurisdiction. You can please your self and apply the model that fit well to your understanding of the posed question or in your domestic economy. Thanks for sharing

It is interesting that possible answers to the research topic is still unfolding. From my experience there are about five species of financial distress. Notably; public sector-oriented financial distress (Public financial stress), Banking sector or nation-wide banking system distress, corporate failure or company insolvencies, personal bankruptcy and sovereign financial crisis which is a full blown national financial and macroeconomic crises. From this conceptual breakdown, it is clear that economic crisis is the largest and that fiscal / monetary policy makers battle public financial crisis as well as banking system instability from treasury management policy measures.

Thank you very much for the contributions of each one of you. All the answers are very interesting and try to add value to an always complex question that can be approached from different points of view.

I think economic crises is affected by so many variables of which financial crises is one of such variables. Hence, it will be hasty to conclude that the prime course of economic crises is financial crises. However, I would opine that the degree to which economic crises is affected by financial crises is dependent on the level of development of the country in question. For instance, most third world countries have poor financial systems, mostly informal. Hence, much of their economic crises are usually political due to bad leadership. Both with more advanced countries,like the US with advanced, well structured and formal financial systems, we can rightly trace financial crises as one of the major indices of economic crises. A typical case in point is the economic crises America faced in 2008 which was closely tied to the financial markets.

can financial development be one of the solution for the financial crisis. are we now about to have a decade of vulnerability. in the next crisis a breakdown on trust in the financial sector? prediction by the former UK prime minister Gordon Brown " world economy was sleepwalking into a future crisis". The global debt level 2018 (Annual report world bank 2018) increase above than 2008 level. World economy at risk of another financial crash by IMF statement. if all countries focus on strengthen their financial system can this be one of the solution? anyone? any idea or suggestion.

Thank you for raising these pertinent issues within this discourse. I am impressed with the manner you made references to the statistical data on the global debt (public sector debt) level as of the middle of 2018 (the year is not ended yet). Brilliance. Are there need for financial systems development and can financial development help in solving incidence of financial crisis - Yes. The issues of vulnerability (risk factor) of the financial systems will always be there and the prediction of Gordon Brown on the world economy as sleepwalking into future crisis - is not supported with facts, figures and not scientifically tested. Its validity stands questionable. But the greatest stake in your postulation is the increase in global public sector debt profile and nothing said about private sector debts - this is incomplete because private sector debt level is capable of spurning national treasuries and macroeconomy to crisis (the US case is a reference point).

However, in relation to the rising public debt levels, eeem, public borrowing is not completely bad especially if such debts can be utilized prudently in viable and cash flow enhancing projects / programmes. This is the huge lessons & learning experience from John Keynes (1937 / 1939) fiscal /macro-economic management hypothesis; which states that government can borrow to pursue expansionary programmes that increase consumption and lead towards full employment of resources at least in the short-term. This is because according to Keynes , in the long-run the people are dead - meaning that people might not leave to see the future when current problems are not efficiently managed or resolved . Over to you, Saadiah Mohammad

I am glad that you raised a very pertinent issue Pedro. I presume that the global economy has been and will be deeply affected by no other factors as the status and trend of foreign trade. Financial and economic issues are interconnected and the one affects the other deeply. Hence, the financial crises need to be viewed in the general framework of trade situation in any country.

Thank you.

Those who think that the crisis was initially financial do not necessarily question the drivers of growth: what seems essential to them is the revival of financial circuits, and a better regulation of risk-taking. . The economic recovery will naturally follow a new supply of oxygen: of course, this will not happen overnight, given the necessarily gradual nature of the restoration of balance sheet equilibrium of companies, governments and households. The position of the Bank for International Settlements reflects fairly well this primacy granted to finance.

Those who think that the crisis of the real economy is the primary factor do not discount the need for financial re-order. Their vision of the future, however, is likely to be colored by the awareness of the structural adjustments that are now at work, and that may be necessary tomorrow before balanced growth becomes possible again, a growth that the If we favor the economy over finance, we can guess that it may be different in its springs and in its characteristics from the one we knew until the break-up of the "big bubble". At the beginning of July 2009, the International Monetary Fund and the World Bank seemed to take into account, more than the BIS, factors related to the real economy.

Economic crisis happen when excesses appear in a certain sector fueled by unjustified enthusiasm or price forecast from bankers or the public trigger excessive debt or valuations in the stock market.

Financial crises are serious because they hit at the heart of the global economy. They always trigger an economic crises (1929, 2008). Fortunately they are quite rare because the financial system is since the 20th century, almost always tightly regulated. However they can happen when regulators don't keep up with financial innovation or lower their guard.

Economic crisis do not necessarily create financial crisis even though the financial system is always part of the recovery process. A good example is the internet bubble in 2002.

One thing is certain, economic crises always come back but in an unexpected way

I believe that economic crises are essentially economic crises. They can have a financial manifestation, or the financial system may make them worst, but business cycles are a typical economic phenomenon.

I agree with Carmelo Ferlito note, that I suppose is quite near to the Schumpeterian analysis you may find in Business Cycles: the structural economic dynamics is always at the beginning of a major financial crisis. In a certain sense it is also at the beginning of the 2008 financial crisis, that - IMHO - cannot be understood without considering the ICT technological revolutions in the '90s which have addressed increasing amount of liquidity in financial markets.

Dear Pedro Maria Martinez Villar,

So far, it has been so that economic crises, debt crises, conjunctural crises etc. originated in the financial crisis. On the other hand, the financial crisis was caused by negative factors accumulated over the years, generating a slowdown in economic growth, and earlier too high systemic credit risk. For the majority of global financial crises, the beginning of the crisis was a dramatic decline in the valuation of shares on stock exchanges, usually on those financial markets that were deregulated and liberalized to the greatest extent in the use of prudential instruments and credit risk management. Usually such situations occurred most frequently in the Anglo-Saxon model of the financial system. On the other hand, the determinants of global financial crises are the various determinants of commercially functioning banking system entities such as unreliable practices of security procedures and credit risk management in investment banks, and also poor monetary policy of central banking, i.e. too lax monetary policy, too low maintained interest rates the situation of growing credit risk in the enterprise sector and over-valuated valuations of financial instruments on stock exchanges and other capital market exchanges.

Best wishes

The issue of the impact of monetary policy on the stability of financial systems in the context of the global financial crisis is described in the publication:

Article ACTIVATING INTERVENTIONIST MONETARY POLICY OF THE EUROPEAN C...

I invite you to discussion and cooperation. Greetings

I don't think so. In many cases, resource depletion, natural disasters, and other crises are still very serious economic crises.

No. An example is Greece, where the recent mess can be found in fiscal policy failures.

The enormous global build up of debt (private and public) seems a likely candidate for initiating the next global economic crisis (see the Minsky’s instability hypothesis and Godley’s stock-flow-consistent approach).

This said the risk of an economic crisis is higher than in earlier periods in economic history since the financial markets are closely integrated, which in turn is due to excessive financial market deregluations and that monetary policy has more and more to do with the behaviour of the financial institutions, than the power to influence the economy of the central banks.

I do not think so. I attach a NeoKeynesian analysis and a Schumpeterian one inspired both by the recent debates on secular ststagnation. In both frames crisis are engendered by non financial factors.

In the paper attach there arguments from institutional evolutionary approaches pointing out to causes of crisis which are not financial at all.

Dear Pedro Maria Martinez Villar, In my opinion, all the largest, global, regional and national so far, but also these smaller economic crises usually originated in the financial crisis. Therefore, there is a high probability that further global or national economic crises will be triggered by the financial crisis. The financial crisis in the initial phase is usually a crisis associated with a sharp, large drop in the valuation of securities on stock exchanges. The financial crisis is usually a crisis of falling trust in the banking sector, characterized by a decline in lending, a decline in the inter-bank loan market. Sometimes, the financial crisis is triggered by a currency crisis, a strong depreciation of the national currency, and sometimes also a great hyperinflation. In some countries that sell government bonds for foreign investment banks, the economic crisis is exacerbated by the crisis of increased state finance debt. Then comes the next stage of crisis development, the stage of economic crisis determined by the deepening recession, falling income, declining consumption, production, investment, employment and rising unemployment. This crisis is deepening as long as the state does not apply effective Keynesian state intervention through effective, efficient application of selected fiscal, monetary and budgetary policy instruments on the expenditure growth side in order to finance enterprises and create new jobs in the public sector and projects carried out within this sector, under expansion of, for example, communication infrastructure. On the other hand, the reduction of crisis-generating factors in the banking sector follows the launch of assistance programs involving the purchase by central banks of assets lost and burdened with the highest level of credit risk from commercial deposit-loan and investment banks.

Best wishes

Dear Friends and Colleagues of RG

I described many aspects of the above issues in my publications regarding various aspects of the global financial crisis that appeared in autumn 2008:

Article APPLICATION OF DATA BASE SYSTEMS BIG DATA AND BUSINESS INTEL...

Article GLOBALIZATIONAL AND NORMATIVE DETERMINANTS OF THE IMPROVEMEN...

Article Determinants of credit risk management in the context of the...

Article Importance and implementation of improvement process of prud...

Article The role and application of Keynesian macroeconomic anti-cri...

Article THE SHADOW BANKING AS AN EXAMPLE OF INEFFICIENCIES IN THE FU...

I invite you to discussion and cooperation.

Best wishes

Many economists agree with the historical, economic and philosophical point of view that "history repeats itself". Economic crises are repeated again, albeit with different forms because they carry the same reasons as a severe shortage of liquidity, sharp decline in bank credit and lack of trust between individuals and financial institutions, And between financial institutions and some of them on the other.

Nothing new, it is a natural economic phenomenon of fluctuation (ups and downs syndrome) in human activities and business cycle. It also occurs in the physical state - erosion, climate change and epidemics - something must cause death of human. It is bound to continue and will outlive persons except divinely intervention. Thanks a whole lot

The known is that economic crises will happen, and the unknown are when, how and why? If we see the list of known economic crises, they have originated from anything ranging from price of tulips in Netherland to sovereign debt crises in Europe or the dotcom bubble (https://en.wikipedia.org/wiki/List_of_economic_crises). Probably, it would be right to say, but difficult to estimate, that a 'huge negative aberration' that affects conjoined ecosystems with significant stake in the global economy can lead to an economic crises. These aberrations can be due to natural disasters, banking system overhaul, regulatory changes, price of basic or essential commodities, war, technology induced anomalies (!), etc. The key aspect of this aberration is that it should have a strong negative impact on the stakeholders of the market system and these effects should able to resonate or reverberate across global market systems.

So most of the biggest economic crises have originated in financial crises. I study these issues.

In the context of the above considerations, the following question is also current:

Why after 2008 the functioning of financial systems has not been improved?

The key questions for the functioning of domestic and international financial markets are as follows:

- Why after 2008 the functioning of financial systems has not been improved and the same factors of systemic credit risk still work, and there is still a high probability of generating another global financial crisis?

- How does the lack of improvement of prudential instruments and failure to carry out the necessary improvement of the credit risk management process increase the scope of potential systemic credit risk in the sphere of financial systems, including banking systems with particular focus on investment banking?

- How to improve the functioning of financial systems, how to improve the investment banking activity to increase the security of financial systems to reduce the likelihood of the emergence of another global financial crisis?

- How should the process of necessary improvement of credit risk management be carried out in order to increase the security of financial systems, including banking systems with particular emphasis on investment banking?

In view of the above, the functioning of financial systems has not been improved in many ways since 2008, the next global financial crisis and the economic crisis are just a matter of time.

Best wishes

In view of the above, the functioning of financial systems has not been improved in many ways since 2008, the next global financial crisis and the economic crisis are just a matter of time.

In my publications (listed below) I answer these questions.In the context of the development of international capital markets, the development of stock exchanges, increasingly globalized and related, the importance of globalization of financial markets, including capital markets and stock exchanges, is increasing.

On these capital markets, there are also increasingly large, internationally operating investment banks and investment funds, whose profits generate increasingly from speculative transactions of securities issued by companies and the public sector, including also Treasury bonds of other countries.

In addition, currency markets are growing, on which speculatively operating internecional banks and hedge investment and investment funds also speculatively.

Before the emergence of the global financial crisis in 2008, it was mainly investment banking that approved the excessive levels of credit risk and speculative, too high, overvalued valuations of securities on stock exchanges.

The problem of accepting an excessively high level of credit risk also concerned the sale of mortgage loans by deposit and credit institutions institutionally prolonged with investment banking, which was enabled in the mid-1990s by liquidating the prudential regulation of the Glass Stegall Act established after the Great Depression of 1929 in order to raise security of the banking and financial system.Establishment of investment banking, wanting to lose responsibility for generating the global financial crisis, blamed the central banking system, suggesting that the central bank is responsible for the financial crisis because it maintained low interest rates for many years.

Paradoxically, this central bank, ie the Federal Reserve Bank in the USA and the European Central Bank in the Eurozone by buying out from the threatened bankruptcy of commercial banks most at risk of insolvency of credit assets saved the financial sector from total destabilization, from loss of citizens' trust for the banking system and thus by taking the responsibility from the management of investment banks for generating the global financial crisis.

Thanks to this, it was possible not to improve prudential systems, financial systems not cured of the disease known as the ease of falling into serious financial crises, each of which is increasingly serious and increasingly the costs of saving the banking system through total destabilization and necessary restructuring are shifted to society.

The recent global financial crisis that appeared in autumn 2008 was an example of the increase in potential systemic credit risk in many countries in which the governments of these countries through the issue of government bonds and their sale to foreign investors led to a significant increase in the risk of a liquidity crisis in the state finances and in many smaller economies, they generated major crises in the debt of state finances.

Do you agree with my opinion?

Please reply

I invite you to discussion and scientific cooperation

Dear Friends and Colleagues of RG

The issues of risk management in the context of determinants of the global financial crisis, globalization processes, technological progress and other factors I described in the publications:

Article Anti-crisis state intervention and created in media images o...

Article Soft monetary central banking policy and Plan for Responsibl...

Article Determinants of credit risk management in the context of the...

Article ACTIVATING INTERVENTIONIST MONETARY POLICY OF THE EUROPEAN C...

Article A safe monetary central banking policy as a significant inst...

I invite you to discussion and cooperation.

Best wishes

I agree that the origin of economic crises is in financial system. It is too volatile (so that there is no stable value), money are created from nothing. Some ideas about the crisis of 2008 are in my working paper: Conference Paper About Origins of Financial Crisis 2008