IBS TIMES 213th ISSUE

IBS TIMES A BRIEF HISTORY OF FINANCIAL DOOM. CAN WE AVOID THE NEXT CATACLYSMIC BUBBLE? INSIDE STORY o THE TALE OF TEQUILA ; BY PUJA BHOWMICK o BLACK MONDAY: 1987; BY PRIYANKA TIWARI o GREECE WANTS TO BREATHE ; NITHIN ABRAHAM

213th ISSUE FINSTREET, IBS HYDERBAD

TEAM IBS TIMES Samriddhi Bhatnagar (Editor in Chief) Rahul kumar G S (Managing Editor) Supriya Panse (Associate Editor) Bidisha De (Associate Editor) Achintya Saraswat Krishma Mohanan Narayan Tripathi Akanshi Bargava Simran Abhichandani Jagdish Samudrala Kartik Bhardwaj Anisha Jose Revathi Menon

Shreya Jariwala Dhruv Bavishi Utkarsh Ranjan Neha Thampi Vidushi Bisani Akhil Shaik Puja Bhowmick Nithin Abraham Sandra Maria Babu Sunil Vijayan Simi Gopalakrishnan Harshada Mahindrakar Preethika Sampath Priyanka Tiwari Vikram Leo Singh

Designed by: Samriddhi Bhatnagar Bidisha De

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EDITOR’S LETTER

It would be impossible even a few years ago, for high-yield or junk bonds to be oversubscribed for negative yields. However that’s specifically what’s happening now. The Wall Street Journal recently issued a trope alert that high-yield bonds had gone negative. Many big bull investors are anxiously letting go of excessive amount of cash as a result of it’s risky factor and investing them in negative yielding bonds, instead! This highly indicates economic slowdown across the world.

This happens in every 20-30 years, where yields turn negative and hence, economic slowdown, even cataclysmic crashes across the world. So was the case in 1992, the biggest depression period. In the 213th issue of IBS Times, we try to cover some of the biggest bubbles and crashes that changed the face of the world as we know it! So strap on, refresh your memory, take lessons and maybe prepare for the oncoming cue.

As an editor, it gives us immense pleasure to hear from our readers. We intend to improve ourselves on every way step of the way and would like you to invite our readers to support the same.

Keep following us on www.finstreetibshyd.wordpress.com as well.

Please write to us become a part of the discussion.

Email ID: editor.ibstimes@gmail.com Samriddhi Bhatnagar (Editor-in-Chief) POC, Team IBS Times FinStreet

CONTENTS  

Hyperinflation: Crises Down the History The Tale of Tequila: Mexico

 The Fall Of 1997- The Asian Financial Crisis  Black Monday: 1987  Everything that Glittered was Gold: Rise & Fall of the Gold Standard  From Richest to Scraps  The ".Com"; Boom To Bubble 

2008 Brief: The Housing Blasphemy

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The Spanish Economic Crisis

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Crisis goes viral: The European Debt Crisis

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Greece Wants To Breath!

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Manipulator Or Stabiliser: China Ominous signs: Does it all add up?

1992: The Bull Scam

Hyperinflation: Crises down the history!!

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Introduction of Hyperinflation with German Economy In early 1923 in Germany, people started doing strange things like using the money to wallpaper their houses and burning money to heat.

One would ask why on Earth people would do that. It was the grip of hyperinflation that had caught Germany in the early 1920s. In order to pay massive reparations to the allies of World War I Germany started printing a huge sum of its currency. As a major result of the prices soared very high. The currency was effectively meaningless by November 1923.

Utkarsh Ranjan

Hyperinflation is a term given to an economic condition when there is rapid, excessive and out of control price increase in an economy. In simple terms, Hyperinflation is the measure of rapidly rising inflation.

Although it is rare it has occurred many times in history in many countries such as China, Germany, Russia, Hungary and Argentina.

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Another one from Chile Apart from German, Chile has also witnessed hyperinflation.

The scenario is a lesson to all. During the 1970s Salvador Allende became president by one-third of the population. Although he was a socialist, he headed the hard left coalition Unidad Popular. This coalition of Socialist and communists who became in-charge of the state wanted to put Chile on the tracks of Socialism. The seeds of true socialism were seen when companies and mines were nationalized and the land was expropriated and were all given to workers. One of the key policy initiatives of Allende was wage and price control. In order to appease and co-opt the workers, Allende’s regime froze prices of basic goods and services. Initially, when the workers had more money, goods and services were still priced at the same rate. The stores and warehouses went on to get rapidly emptied.

Meanwhile, the private companies were seen on its way towards bankruptcy as they were forced to increase workers’ wages. In order to satisfy the internal demands, the key industries were made to continue its operation at losses. This is how Hyperinflation started to hit in Chile as workers had plenty of cash but there were no goods to buy. Very soon a black market was developed which was not accepting escudos as their mantra became Only Dollars.

Hyperinflation had arrived in Chile.

During December 1972 to 1973, the inflation was extremely high up to 508%. GDP growth of the country went down to -1.2% from 9%.

Vuckovic was made the minister of economy and the Allende government announced that it would default on debts owed to international creditors. Allende’s economic policies had turned Chile into a recessional state with a negative growth rate. By September 1973 the inflation had reached 381.1%.

A recent story of Zimbabwe One of the most recent periods of instability was witnessed in Zimbabwe in 2008 at an astonishing 79.6 billion per cent. Robert Mugabe’s government was printing a lot of money to overcome their financial needs in the Second Congo War. Lack of confidence resulted in Institutional corruption. This along with poor economic policies by government added spice to the hyperinflation. It was a period of Civic unrest and political instability.

Zimbabwe adopted the use of foreign currency. It also stopped the printing of its currency in the year 2009.

Slowly the lost faith in the monetary currency was brought back. Usually what is observed is that if hyperinflation continues, people tend to hoard perishable goods resulting in daily supply becoming scarce which in turn results in fall of the economy.

Hyperinflation results in unemployment the importers of the particular nation go out of business.

In order to pay its bills the government prints more of its currency hence worsening the hyperinflation. However, there are some winners also on the other facet of the coin, The Exporters. The lowered value of currency makes exports cheaper than foreign competitors. Apart from this the people who have taken a loan they are also benefited as higher prices make their debt worthless.

Where does India stand?

As far our country is concerned and the current economic slowdown, the inflation rate might rise and there are chances of a recession in the upcoming years to hit the country severely but at no cost, there will be chances of hyperinflation in India.

Economic parameters have shown the increase in unemployment and lower growth rate and a slowdown in macroeconomic parameters like the manufacturing sector, credit growth but the government will have to ensure the growth of the economy by export and modernization of agriculture sector.

The Tale Of Tequila: Mexico Puja Bhowmick era of World War-By II when the nation started rebuilding itself.

INTRODUCTION:

1994 is the year, the Mexican economy encountered financial catastrophe which brought two aspects in limelight, regulation, and supervision. During the time of 1990, the economy of Mexico was reflecting the spirit of the economy by showing positive trends.

Mexican Peso Crisis (also called Tequila Effect or the Mexican Shock), during the year 1994-1995 caused due to the disintegration of the USSR.

Miguel Aleman was declared the first civilian president of Mexico.

1968-1994 was ruled by the government party Partido Revolucionario Institucional (PRI) where Mexico endured two consecutive crises.

PESO The Mexican peso is the currency of Mexico. The name “peso” derived from the Mexican word 'pesos' which means 'weights' and refers to gold or silver weights. It originates from the Spanish silver dollar. The Mexican peso ranks tenth as the most traded currency in the world and the most traded in Latin America region. Presently, 1 Mexican peso= 0.051 US dollars.

CRISIS IN NUTSHELL:

BRIEF HISTORY OF MEXICO:

Mexico is the third-largest country in Latin America, lies in the southern part of North America.

Mexico City is the capital of the country. The country has strong economic relations with the US. Two major crises faced by Mexico are the Mexican Debt Crisis of 1982 and 1994 Mexican Peso Crisis.1861-1923, was the time when Mexico followed the path of revolution and 1934-1946 was the

The Mexico Crisis can be defined as the financial turmoil which resulted from the devaluation of Peso. When in power, President Carlos implemented some important economic reforms like liberalization, privatization of banks, etc.

Unfortunately, the reforms didn’t give the desired results. Instead, privatization of banks handicapped the banking system and liberalization made the country more dependent on foreign investments.

Implementation of “crawling peg”, a fixed exchange rate policy by Salinas’ administration also made the country delicate towards the crisis.

President Ernesto Zedillo succeeded as the President of Mexico and addressed the fixed-rate dispute by declaring further devaluation of the peso by 15%. The solution to the problem backfired and different speculations were emanated. As Mexico flared their false impression, in 1995 all the major investors tried to flee from peso withering the countries’ economy.

As the Mexican economy continued to collapse it kept passing “The Tequila” to other countries of Latin America and to even in some parts of Asia which means the peso kept contaminating other emerging markets. This effect is known as the “Tequila Effect.” and also the cause of the Crisis.

FACTORS CONTRIBUTED TO THE CRISIS: Several factors contributed to Mexico’s “tequila crisis” in 1994 and the devaluation of Peso by 50% played the role of protagonist.

Some other factors are mentioned below:  Peso was overvalued due to inflation which further crumbled its competitiveness.

As a consequence, the country faced a trade deficit of US$ 20 billion in 1994. (Trade deficit)  The short term hot money flow into the economy also made economy vulnerable to the crisis.

 Weakening of banking system.  While the government was using dollar-denominated bonds, the debt of the country increased steadily. Reserves fell from around $30 billion at the beginning of 1994 to $17 by early November to $6billion by the end of December. (Increasing Debt )  Investors pulled out an enormous amount of capital from the Mexican economy due to political and economic outrage suspecting the stability of the Mexican economy.

(Investors sentiments).

EFFECTS OF CRISIS:  The first and foremost impact was on the country’s GDP which was reduced by 6.2 %.  The poverty increased by 23.7 % and this was a long-lasting effect. The poverty level increased to 37% in 1996 and it took almost 6 years to normalize. The effect of the crisis was adverse on the rural sector, they suffered even after the combat of crisis.  Unemployment followed by a deep recession had hit the country badly.  Growing demand for imports and a decline in exports contributed to the balance of payments deterioration and lower domestic savings.

 The Decline in foreign reserve lingered till November and December 1994 and the fixed peso exchange rate combined to impart peso’s downfall.  The devaluation of the peso was mishandled and the measures taken by the government were disappointing and lead to a heavy loss of reputation which further weakened the economy.

STEPS TAKEN GOVERNMENT:

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The government decided to restructure the economy to protect Mexico from the impact of future crises. The Mexican government collaborated with the IMF (International Monetary Fund) and the United States government to allow the Mexican government to withdraw up to $50 billion in loans from both the IMF and the US during the time of crisis.

The government also adopted a floating exchange rate which helped them in balancing the economy to some a certain level. Zedillo's economic strategy was paying off finally and helped in achieving macroeconomic stability and expanded domestic savings.

Since it met the fiscal deficit target for 1999, equivalent to 1.25 percent of GDP, the government was able to lower the ratio of net public debt to GDP to 25.3 percent in 1999 from 27.9 percent at the end of 1998.

Market amortizations of the public sector's external debt for the last quarter of 1999 and the year 2000 as a whole amount to $2.3 billion.

The reforms which the Mexican government implemented mainly focused on economic and financial liberalization, changes were made in labor market structure, capital market liberalization, and high government intervention on the pension system.

MEXICO’S PRESENT ECONOMIC CONDITION: The reforms adopted by the government worked as a boon and boosted the Mexican economy According to the Bank of Mexico, the Mexican government had reduced its public debt to 15.8 percent of GDP and it was running a budget surplus of 0.1 percent of GDP by 2006. The floating exchange rate stimulated Mexico’s industrial sector by making Mexican goods appear cheaper in the global market. This increased Mexican exports to member countries brought revenue of around USD$250 billion in 2008. GDP Growth Rate in Mexico averaged 0.59% from 1993 to June 2019.

Trade Wars might have fetched some tension to the Mexican economy nevertheless in 2019 the economic growth of the country is expected to exceed more than 2018.

In my opinion, the constant policy reforms in Mexico in 1994 had made the country defenceless and became the prey of economic trauma. As an Indian, I am very proud that my country has evolved but do we have enough capacity to brace constant changes and reforms. Foreign investment does enhance country’s economy but at the same time, we need to concentrate on domestic earnings and development.

Elongated devaluation of any country’s currency is the beginning of the tragic fall which forces us to ponder on the question- Are we ready to face the consequences?

WRITER’S VIEWS: The world witnessed few major crises which caused disruptions to the domestic economy as well as to the global economy. May it be Great Depression or 2000’s oil crisis or 2008’s Great Recession, one of the inevitable outcomes is Global Recession. History teaches us great lessons but still, the question remains do we have learned anything?

1994-1995 Mexican Shock was a lesson for all the countries emerging economy, developing, developed economy. The amount of agitation that can be produced if the political and economic sphere of any country goes haywire is towering. Analysts have indicated that there has been a series of evidence which might lead to the Global Recession in 2020.

The Fall Of 1997- The Asian Financial Crisis -Vidushi

1997 is undoubtedly an unforgettable year with black swan events in the history of Asia. In 1997, the economies of East Asia and Southeast Asia were on a rapid descend. It was the year of a severe financial contagion, a situation where a faltering economy of one country affects the growth of healthy economies of other countries. The major countries that were affected were Thailand, Indonesia and South Korea.

The financial contagion raised tensions all over the world fearing a massive economic meltdown. It all started with a crisis in Thailand with a burden of foreign debt and the heavy attack on Baht, the official currency of Thailand, which collapsed due to the exchange rate switching policy. Earlier, the Thai economy followed the fixed exchange rate policy supported to the US dollar, but due to the enormous size of foreign liabilities that it possessed, the government was forced to shift to the flexible exchange rate policy system which led to the fall of Thai Baht.

Bisani

As a result of capital flight, an international chain reaction began which laid the foundations of the Asian financial contagion of 1997.

THE STORY The story of Thailand was not so dire initially. Since early 1990s the Thai economy was prospering and bearing fruits. They had attracted huge amounts of capital inflows from abroad due to its adaptable economic policies, healthy looking conditions and some external forces such as stagnation of the Japanese economy and recession in the European countries.

After light years, the government decided to remove the strict financial regulations that restricted credit expansion of commercial banks and decided to accommodate financial deregulation and capital account liberalization. With large amounts of capital inflow overflowing, domestic investment and banking sector had its prime years and expanded rapidly.

However, the prime years did not last long. The Thai Central BankThe bank of Thailand monitored the banks and non-banking financial institutions (NBFCs) very liberally.

These institutions made large sums of money as there were hardly any hurdles or hindrances that they faced in borrowing money. Nonetheless, the lending and capital inflow principles followed were neither very healthy not wise.

the banking crisis. To make thing worse, investors started selling their investments and claimed back their foreign assets following which bank balance sheets started looking extremely gloomy. The economy started facing a severe credit crunch and many investors which investment opportunities were unable to get loans. The situation became severe and the fall had begun.

A huge chunk of this capital was invested towards non-productive sectors especially real estate. These sectors reduced the volume of exports as they were traded only domestically thereby inviting fiscal deficit and weakening the economy’s balance of trade. From the year 1995, Thailand’s growth became much slower. It contracted due to a number of factors such as an unprofitable and a shrinking real estate sector, the emergence of China as a formidable competitor in international trade and the fall of demand of semiconductor globally, which was one of the major Thai exports. More and more houses were being built with little or no demand, and the real estate owners were in no position to pay back their loans to the financial institutions when the maturity came.

With this, the problem of nonperforming loans began and led to

THE WAY OUT The Asian financial crisis was solved after the International Monetary Fund (IMF) came to all the troubled economies rescue and aided them. IMF pledged more than $110 billion in short term loans to Thailand, South Korea and Indonesia to help them revamp and stabilize their economies. This financial crisis is also considered to be severe as the loan provided by IMF was more than double of its largest loan ever.

In exchange to its help, IMF expected the countries to adhere to strict regulations that included higher tax rates, reduces public spending, privatisation of state owned business i.e. privatisation and higher interested rates. Some countries were also required to shut down financial institutions that were illiquid without any concern of job losses, and all these measures were designed to bring back the economies to standard.

MORAL OF THE STORY

The Asian financial crisis has also left its mark with some lessons for the future. The crisis in Thailand was unforeseen and unexpected and it is important for countries to be aware and watch out for asset bubbles in the latest and hottest economies of the world. Economies must also act wise in investment planning and lending management.

The Thai economy made a mistake by lending and investing predominantly in the real estate and other underperforming sectors which led to disturbance in the market demand and also rooted credit crunch in the economy. Thailand might have been able to avoid the crisis if it planned its lending efficiently and directed its funds to the right and fruitful sectors of the economy.

BLACK MONDAY: 1987 Initial Public Offering is the point at which an organization issues stock - Priyanka Tiwari to the general population The Stock Market Crash of 1987 or "Black Monday" was the biggest one-day market crash ever. The Dow lost 22.6% of its worth or $500 billion dollars on October 19, 1987.

The Stock Market Crash of 1987 were pennant years for the securities exchange. These years were an augmentation of an amazingly incredible and positively trending business sector that had begun in the mid-year of 1982. This trending business sector had been energized by low financing costs, antagonistic takeovers, utilized buyouts and merger madness.

just because. "Microcomputers" presently known as PCs were turned into a quickly developing industry.

Individuals began to see the PC as a progressive instrument that would change our lifestyle, while making awesome business openings. The putting open inevitably ended up made up for lost time in an infectious elation that was like that of some other noteworthy air pocket and market crash. This elation made financial specialists, obviously, accept that the securities exchange would "consistently go up."

Numerous organizations were scrambling to raise money to get each other out. The business theory of the time was that organizations could develop exponentially just by continually securing different organizations. In a utilized buyout, an organization would raise a huge measure of capital by selling garbage bonds to the general population. Garbage securities are securities that pay high loan costs because of their high danger of default.

How the Stock Market Crash of 1987 Began

The capital raised through selling garbage bonds would go toward the acquisition of the ideal organization.

Initial public offerings were additionally turning into a typical driver of market fervour. An IPO or

During this development blast, the SEC discovered it progressively hard to keep obscure IPOs and aggregates from multiplying. In mid-1987, the SEC led various examinations of unlawful insider

exchanging, which made a careful position among speculators.

their representatives to sell their stocks.

Simultaneously, expansion and overheating turned into a worry because of the high pace of financial and credit development. The Federal Reserve quickly raised momentary loan fees to temper expansion, which hosed some of stock speculators' eagerness. Numerous institutional exchanging firms started to use portfolio protection to secure against further stock plunges.

Portfolio protection is a supporting procedure that utilizations stock record fates to pad value portfolios against wide financial exchange decreases. As loan costs rose, numerous institutional cash directors mixed to support their portfolios simultaneously.

On October nineteenth 1987, the stock file prospects market was overflowed with billions of dollars’ worth of sell arranges inside minutes, causing both the fates and securities exchanges to crash. What's more, numerous basic stock financial specialists endeavoured to sell all the while, which totally overpowered the securities exchange.

This was ineffective on the grounds that each specialist had numerous customers. Numerous individuals lost a great many dollars in a split second. There are accounts of some precarious people who had lost a lot of cash who went to their agent's office with a firearm and began shooting. A couple of representatives were killed in spite of the reality

On October nineteenth 1987, $500 billion in market capitalization was vanished from the Dow Jones stock list. Markets in almost every nation around the globe dove along these lines. At the point when individual financial specialists heard that a monstrous securities exchange crash was happening, they hurried to call

Black Monday - the Stock Market Crash of 1987 - Time Magazine said that they had no power over the market activity. Most of financial specialists who were selling didn't know why they were selling with the exception of the way that "every other person was selling." This inwardly charged conduct is one of the fundamental reasons that the securities exchange smashed so drastically. After the October nineteenth dive, numerous fates and stock trades were closed down for a day.

Not long after the accident, the Federal Reserve chose to intercede to avert a considerably more noteworthy emergency. Transient loan costs were in a flash brought down to avoid a retreat and banking emergency.

Surprisingly, the business sectors recuperated decently fast from the most noticeably awful one day financial exchange crash. Not at all like after the financial exchange crash of 1929, the securities exchange immediately left on a bull pursue the October crash. The post-crash positively trending business sector was driven by organizations that repurchased their stocks that that the viewed as underestimated after the market emergency.

Another motivation behind why stocks kept on ascending after the accident was that the Japanese economy and securities exchange was setting out alone huge positively trending business sector, which pulled the U.S. securities exchange to already unexpected statures. After the 1987 financial exchange crash, as arrangement of circuit breakers were established to electronically end stocks from exchanging in the event that they fall too rapidly.

Everything That Glittered Was Gold: Rise & Fall Of The Gold Standard – Dhruv Bavishi According to the World Gold Council, the gold standard is a system in which all countries would fix the value of their currency in terms of the amount of gold that would in turn help in trading. This could be treated as a linkage between the two countries while doing the trade.

The Birth of Gold Standard: The gold standard existed from the year 1870 till the outbreak of World War 1 which was held in 1914. In the 19th century, there were various currencies which could be treated as negotiable items. They were gold, silver, copper and specified issued banknotes. Countries like the UK, Portugal, France, Germany and other counties were using their own domestic currency and that could not be tradable in the market. So, they decided to come up with the standard currency that could be accepted and as well as can be traded in the western markets. In 1870 monometallic gold standard was adopted by Germany, France and the UK and many other countries followed the suit. In 1874 the United States officially introduced a Bimetallic system in which both gold and silver could be traded in the European market and as well as in the Western market.

How did Gold Standard work?

Gold Standard was regulated by the domestic body during those times.

They regulated the quantity of gold circulated in the market and also would go through growth rate of money supply in the market. The authorities were also converting the gold reserve into the paper notes which could be treated as the negotiable item in the market. The paper notes at that time were called as non-gold money. The authorities also looked upon the supply of nongold money in the market. In periodic surges in 1850, the gold reserves were found in the Australia and California which bought an instability in gold prices.

The Gold Standard was an international standard determining the value of a currency of one country with respect to another country's currency. As the country

could covert it's gold to own currency, the authorities made sure that it is done properly so as to check the supply of money with gold and also to check too much price instability in the market. We can understand this with a small trading example: The price of gold in the United States of America is $20.67 per ounce and in the United Kingdom it is ÂŁ24.80 per ounce.

Therefore, the exchange rate with the dollars and pounds is par, then they can exchange it at equal price.

Because the exchange rate was fixed during those times, the gold standard caused the price movement around the world to move together. The comovement occurred due to balance of payment adjustment process called price specific flow mechanism. During those days the United States was bringing more technological advancements and innovation which brought about faster economic growth and technology was a thing that was demanded by every country. So, the United States started exporting most of its things to other countries which brought a greater cash inflow to the United States. The United Kingdom started importing more from the United States and this brought an increase in the balance of payments of the US and decrease in the balance of payment of the UK. As the UK was importing more rather than exporting, it lead to a decrease in their gold reserve and also brought a great decline in the nonmonetary value. This has affected

the domestic money supply, expenditure, price level and income level of a country.

This has also affected the US who was in surplus in the balance of payments. The reason for it was that money supply was raised causing an increase in domestic expenditure, nominal income and also the price level. The increase in domestic price level of goods caused the US to increase the price of export, which in turn showed a negative sign on the balance of trade.

Fall of Gold Standard The following can be considered as the possible reasons for the fall in Gold Standard: 1. Variation in the Prices: There was an inflationary and deflationary price effect of currency in gold standards.

So, all the government of various countries after World War Ι decided not to follow the gold standard.

2. Restriction of Free Trade: The successful working of the gold standard system required free trade between two countries.

But during the interwar time, the gold standard following countries abandoned free trade policy and adopted restrictive trade practices during the time of imports.

3. Unbalanced Gold Distribution: An important condition of the gold standard was every country should

have adequate and proper gold stocks with them. During wartime, the US and France had huge amount of gold reserve and wherein Germany and Eastern Europe had less amount of gold reserve because they spent all their money on buying war equipment.

4. Excessive use of the Gold Standard: The excessive usage of gold exchange standards was a reason for the breakdown of gold standards because many small countries which were dealing in gold exchange kept their reserve in New York and London but rumours for war lead small countries to withdraw their reserves.

5. Rise of Nationalism: After World War Ι an economic nationalism wave swept the European countries. With an objective of self-sufficiency, each country followed protectionism with the concept to protect its domestic traders.

These were some of the factors that led the countries to dislodge the concept of gold standards from their countries.

Conclusion: Currently we are living in 21 century where dollar is treated as a negotiable instrument and it is accepted by most of the countries

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but it is not too far when dedollarization might happen. The major currencies that might be used instead are Euro or BRICS formulated currency.

Euro is generally used in the European Union. Value of a currency is dependent on the economic growth, GDP, inflation and various factors.

The European Union is committee which takes decision for its member countries and decision taken by the EU is applicable to its every member country. The EU is taking measures to make its economy stronger and hence could be a possible alternative for dollars.

The second option could be BRICS currency. The BRICS countries are vibrant economies and the countries present in this union are moving and taking stronger steps to develop each other’s economies. The union of these countries has thought of developing their own currency and this would help in easy exchange of goods and services, further this could also lead to in dedollarization.

From Richest To Scrap: Venezuela

opening of markets by thenpresident, Carlos Andres Perez.

- Sandra Maria Babu

The Rich History Venezuela named after the Bolivarian Republic of Venezuela since 1999 is still known widely for its petroleum industry and the democratic rule was once praised by the world. Between 1900 and 1920, Venezuela's per capita GDP had grown at a rate of barely 1.8%.

Between 1940 and 1948 it grew at 6.8% p.a. By the 1960's and 1970's the government of Venezuela were able to maintain social harmony by spending a large amount on public programs. In 1970, Venezuela managed to become the richest country in Latin America and one among the 20 richest countries in the world. During the presidency of Hugo Chavez, the price of oil reached a historic height of $100 a barrel.

Fall of Venezuela Venezuelan workers were known for enjoying the highest wages in Latin America, a situation that dramatically changed when oil prices collapsed during the 1980s.

The economy contracted and inflation level rose, to somewhere between 6% and 12% from 1982 to 1986. In 1989, the inflation rate surged to 81%. In the same year, the capital city of Caracas experienced riot during the Caracazo following the cuts in government spending and

Venezuela's GDP went from 8.3% in 1989 to 4.4% in 1990 and remained low and unemployment rose among Venezuelans.

The situation became even worse after the election of Nicolas Maduro in 2013. His authoritarian rule begun with the implementation of freemarket policies which created hyperinflation and economic contraction worse than America's Great Depression. The highest increase in the minimum wage ordered by him-65% of the monthly income and creation of a new popular assembly with the ability to re-write the constitution. The Venezuelan opposition said that the move further weakened the chances of holding a vote to remove Maduro.

Regional leftist allies like Cuba was backing this decision. Even though the country sits in the world's largest oil reserves, it has been the region's poorest performance in terms of growth of GDP per capita.

The billions of dollars in revenue were used to finance social programs and food subsidies. But when the price of oil fell, those programs and subsidies became unsustainable. According to the Central Bank of Venezuela, the country had $10.4bn in foreign reserve left and was estimated to have a debt of $7.2bn. Due to the control in currency, imports were limited, leading to a stagnation in supply.

A CENDAS (Centre for Documentation and Social Analysis) report indicates that in March 2017 a family of five needed to collect 1.06 million Bolivars to pay for the basic basket of goods for one month, that included food and hygiene items as well as spending on housing, education, health and basic services.

The cost of that basket rose by 15.8% that is an increase of 424% compared to 2016.

The price of key items, food and medicines were reduced during the rule of Hugo Chavez. Products became more affordable but they were below the cost of production.

Authority of private companies were taken in hands of the government and even restricted people to change currency into dollars. Chavez restricted access to dollars and fixed the rate. When it became unprofitable for Venezuelan companies to continue producing their own products, the government decided to import them from abroad using the money from oil reserves.

But oil prices have been falling since 2014, which has left the economic system of subsidies and price controls that functioned during the oil boom years, devastated. Shortage of goods occurred due to the inability to pay for the imports with Bolivars. The state tried to ration food and set their prices, but the consequence was that the products disappeared from a shop and ended up in the black market, overpriced.

As many as 85 of every 100 medicines were missing in the country. Shortages became so extreme that patients sometimes took medicines ill-suited for their conditions, doctors warn. There were thus two options before Maduro's government: first, was to default on its debt or second, to stop importing food.

Venezuela has established different exchange rate systems for its

national currency, the Bolivars. One rate was for essential goods, other for "non-essential goods" and another one for people. This has guaranteed a situation in which Venezuelans are opting for dollars instead of Bolivars. The government has also increased the number of Bolivars available in the streets, as the money in circulation has not been enough to pay for basic goods that today cost a lot more. This has stoked fears of hyperinflation.

In 2018, the economy shrunk by 15% and inflation set to reach by 13000%. Maduro has not addressed any of the problems or the legacy that he inherited from Hugo Chavez.

It became difficult for people who were not elite like loyalist circle around Maduro, profiting and benefiting the high life because they didn’t have to worry about shopping every day or paying their bills.

Conclusion In the end, Maduro can wipe and clean his hands, but he is the president. The present scenario in Venezuela is that many people illegally crossing countries like Brazil where they face violent opposition from locals.

What can be done lastly is vested with the government who need to adopt and revise the economic policy instead of showing political power. Mr. Guedo has declared himself as acting president and now the war is for power where in between the tears of Venezuelan’s.

Even when the country is in vain, rest of the countries contribute to the political chaos of presidency issues.

It will take years for this big economic crisis to get back to normal where the government need to take active measures rather than making the country into dust.

The ".Com"; Boom To Bubble - Akhil Shaik & Haripreeth D Introduction With the advent of the Internet era in the late 1990s, a new line of business came into existence and the world was shifting towards information technology.

Many internet companies have been established in the USA and they started raising funds through IPOs and venture funding, and the investors believed that these companies are going to change the future of the World just as the invention of electricity and railways did. With eagerness, many investors and venture capitalists invested lots of money in any internet-based company which had ".com" in its name and this gave rise to an economic bubble called "Dotcom Bubble" or Tech Bubble which became the largest asset bubble in the history of equity markets.

Creation of the bubble It all started because of greed and

fad-based investing style of investors. With the hope of huge profits, they started investing in tech start-ups amongst which many lacked a viable business model.

The stock prices rose to new heights as money flowed to these companies and became quadrable just within a week. They got the valuation of multibillion dollars within a short period, as a result, many new companies started entering into the market of the internet. They just had to add ‘.com’ in their business name and the unlimited money would flow in. An author named this as, "Prefix Investing".

With this huge funding, these companies entered into unusual and risky business practices in the hope of earning profit. They spent investors’ money crazily on advertising to get an edge over competitors, huge amount on rentals for their luxury offices, hiring great number of employees, paying them huge salaries and on many more such activities. However, to generate revenue they largely relied on banner ads and these ad revenues were too little as compared to the massive spends done by the ‘.com companies’. Nowadays, giants like Google may generate huge business from these adverts, but back then, the game was completely different

where the use and reachability were very limited.

One of the major contributors to the bubble was an investor’s unawareness about the business model of a company in which he was investing in. The hype was so viral that any tech company that went for an IPO would see an increase of about 400% in its stock price within a week.

In addition to all these, on September 11, 2001, Al-Qaeda attacked the World Trade Centre and terrorized many investors.

As the investors pulled back their money to avoid further losses, the pre-mature companies with no proper backups collapsed in no time and the bubble burst around the year 2002.

Possible catalysts of the bubble The cheap money policy (1998-99) made money easily available for low-interest rates, thus allowing investors to chase this internet business with dollars in hope for higher returns.

Taxpayer Relief Act of 1997 lowered the margin on long term capital gain from 28% to 20%. This tax policy gave a boost for the investments into the capital markets.

These factors further encouraged the investors and it continued from 1997-2000, until, the bubble reached a peak point in mid-2000.

The Burst Despite of the hype, some investors believed that many of the dot-coms would never make profit.

With companies like Cisco and Dell starting to sell off their shares, the investors began to panic and in fear of making losses, they in turn started selling their shares. This caused the stock market to lose its value by 10% within a few weeks.

By the end of 2002, millions of investors' money and valuation of these companies were reduced to no worth, thus crashing almost all the dot-com based companies. Only few players like Amazon, eBay and Priceline were able to sustain.

This bubble not only affected the individual investors but also companies like Goldman Sachs, JP Morgan, and the Benetton group.

After Effects of the Burst The effects of the burst of the bubble were the bankruptcy of several companies. Many other companies that struggled were acquired or merged with other firms. In order to

remove any association as a dotcom company, many companies changed their names.

During the dot com era, cities all over the US sought to become the next Silicon Valley by building network-enabled office space to attract internet entrepreneurs.

The dot com companies produced a false demand for commercial real estate and their insatiable hunger for growth. Data centres, facilitating housing of computers, servers, telecommunications, and other storage equipment and systems to protect and backup data, power and cooling systems were the popular purchases during the beginning of the dot com bubble. When the bubble burst many of these data centres and office spaces were left vacant. The cost of transferring data centres to usable office space turned out to be very expensive.

Silicon Valley and San Francisco were hit the hardest. The rent rates fell steeply in these areas. After the burst San Francisco office was 49% vacant. The citywide office vacancy rate rose from 1.8% in the third quarter to 23% in the fourth quarter of 2001. Office space has been transformed into flats by failed businesses such as Pets.com.

Employment in Silicon Valley high tech industries declined by about 17% and rent fell by 30%.

However, research indicates that about 50% of dot coms survived through 2004.

It reflects two facts: Firstly, the destruction of public market wealth was not necessarily associated with the closure of businesses and secondly, many dot coms were able to weather the financial markets storm.

The New Dot Com In 2007, new internet technologies prompted another rush of start-ups to tap the energy associated with Web 2.0 – wikis, blogs, podcasts, widgets and social media- to quickly extend their internet real estate. But while the Web 2.0 phenomenon may have some things in common with the Dot Com bubble, experts note that there are also differences, including the low cost of entry for companies launching blogs, wiki or social networking businesses.

The main difference, however, is that this time around, consumers are driving the adoption of technologies rather than companies trying to force their internet rates onto users.

The business need for internet speed is rising exponentially in the digital era of Google, Yahoo, Netflix, YouTube, Facebook, Twitter, online gaming and Smartphones. Such cloud data must be stored offsite at colossal data centres. Data centre property niche has been one of the few commercial real estate sectors that generated sizzle through the recession. Granted, data centre sales, leasing and development transactions slowed considerably in 2008 and 2009 as construction and acquisition financing dried up.

However, pent-up demand since 2005 has sparked a new flurry in construction, acquisitions, and equity raising activities by data centre builders and investors, with hundreds of thousands of square feet of new data facilities, were announced in 2009 – 2010.

Conclusion Dot Com bubble burst does not seem to have come from one single factor.

The media played a large part in making investors overconfident during the growth and then overly pessimistic leading to its eventual demise. Also found that unsound business model and getting big fast played a major role.

We may be in another Social Media bubble right now with characteristics very similar to that of the dot-com crisis. However, one can hardly identify a bubble while it is growing but when it bursts it seems so obvious.

Looking at the valuations of present tech companies, one of the biggest question is, are we going to experience a bigger bubble this time? Only time seems to know the answer.

2008 Brief: The Housing Blasphemy -Shreya Jariwala & Vikram Leo Singh banks’ income would remain stable.

The “The Financial Crisis and the Great Depression posed the most significant macro-economic challenges for the United States in a half-century, leaving behind high unemployment and below-target inflation and calling for highly accommodative monetary policies”~ Jerome Powell (16th chair of Federal Reserve).

The Subprime Crisis occurred in August 2008, which led to the meltdown of the US economy.

Causes of the Subprime Crisis The housing sector in the US was booming and was at its peak. There were 3 parties who benefited from sub-prime loan: The Borrowers, Financial Institutional Investors (FIIs) and The Banks. Gradually, the supply exceeded the demand and the prices of the houses fell. As the prices of houses fell the borrowers made less income. In order, the banks increased their interest rates so the people who can afford to repay loans, would pay more and the

FIIs saw the crashing of the households and hence withdrew money for the banks. Therefore, banks were the most affected by this crisis.

How were the banks affected?

New investment vehicles allowed bankers to bundle thousands of individual mortgages together into bonds as homeowners paid their mortgage every month. That money was pooled and paid out to the investor who bought these bonds.

Before long most mortgages from America’s pool of qualified borrowers the so-called prime market had already been bundled and sold off. Rather than watched profits dry up brokers and banks turned to the sub-prime market which included less qualified borrowers with a bad credit history or unstable income.

From 2001 to 2006, the sub-prime share of the mortgage market was more than doubled. The risky debt was packed together with safer debt and was then split up and sold off to the investors often without knowing the percentage content of prime and sub-prime debt in their bonds.

To boost returns, banks borrowed, to exponentially increase the stake and thus pay off their debts in a practice known as leverage. Profits soared but, the good times wouldn’t last as the sub-prime borrowers began to default. Housing prices started to

fall, defaulters increased and banks found themselves saddled with enormous loads of bad debt mixed with good debt. No one was sure that was their portfolio worth or not.

They were not sure whether they could afford to blend with each other and the crucial interbank credit system that keeps major financial institutions solvent began to freeze up. By 2007, sub-prime mortgage brokers started to go bankrupt and real estate hedge funds began to fail.

By 2008, the situation was spinning out of control. In March, Wall Street’s Fifth Largest investment Bank “Bear Stearns” was saved at the last minute from bankruptcy and was sold to JPMorgan. In July the Government was forced to rescue mortgage giants “Fannie Mae and Freddie Mac” in a 187 million dollar bailout. It was the largest bailout in US history.

With panic spreading Wall Street looked out for the next default that was No. 1 on their list which was ‘Lehman Brothers”. It was a 150year-old company which filed bankruptcy. Lehman Brothers had massive exposure to the crumbling mortgage after years of buying in big. Its stock fell and the government tried to find a buyer for the bank but, the bank seemed to have no luck.

In April 2007, “New Century”, an American REIT specializing in subprime mortgages, filed for

bankruptcy protection.

This propagated the sub-prime crisis,

through securitization, to banks around the world. “BNP Paribas” blocked withdrawals from three of its hedge funds, since there was no liquidity, making valuation of the funds impossible – a clear sign that banks were refusing to do business with each other. The Federal Open Market Committee began reducing the federal funds rate from its peak of 5.25% in response to worries about liquidity and confidence.

The Federal Reserve took over the American International Group. The Reserve Primary Fund "broke the buck" as a result of massive withdrawals from money market accounts. “Goldman Sachs” and “Morgan Stanley” converted themselves from investment banks to bank holding companies to increase their protection by the Federal Reserve.

“Washington Mutual” a savings bank holding company also went bankrupt.

Impact on Indian Economy:

To our surprise, the Indian Economy had a lesser impact than other economies. This was because of the following reasons:  There was a lower dependence on exports. Therefore, the GDP/NI was lesser dependent on the exports of the country. At that time India was not an exportdriven-country.  A majority of the contribution of the GDP of India was from domestic sources and not from international-sources.  Indian Banks and FIIs had limited exposure to the US mortgage market or stressed global financial institutions.

However, there were other impacts on the Indian economy. The fiscal deficit expanded to 6% of GDP in the 2008-09 financial year. In 200708, it was only 2.7% of GDP. Due to the fiscal deficit, fiscal stimulus was provided by the government. The economy had also gone through major changes like: The increase in the current account deficit in 2008 and this lead to depreciation of Indian Rupee (INR). Even the NPAs (Non-Performing Assets) in the Indian Banks increased especially in the private sector.

(Source:Bloomberg)

The Spanish Economic Crisis -

Sunil Vijayan

What is an Economic Crisis?

The Scenario in Spain

The economic crisis in simple terms is a significant decline in the economic activity spread across the country, lasting more than a few months, normally affecting the Real Gross Domestic Product (GDP) growth, employment, income, industrial production, and sales. An economic crisis can take the form of a recession or a depression.

The Spanish economy is one of the largest economies both in terms of nominal GDP as well as by Purchasing Power Parity. It’s the 5th largest in the European Union and 4th largest in the Eurozone, based on nominal GDP statistics in 2015.

Spain is members of WTO (World Trade Organization) and OECD (Organization for Economic Cooperation and Development) that facilitate its international trade.

An Economic crisis is usually characterized by a state of negative economic growth which can continue up to two consecutive financial quarters.

The global financial crisis of 2008 is a major financial crisis the worst of its kind since the Great Depression of 1930. This crisis developed as a result of the bankruptcy of the American investment bank Lehmann Brothers in 2008 and from there on it spread like wildfire around the globe. The effects of Economic crisis were many including companies getting closed, countries coming close to bankruptcy, unemployment rates reaching new highs, and increasing poverty risks.

Between 2007 and 2013, almost 15 million people in the area of the Organization for Economic Cooperation and Development (OECD) lost their jobs.

Spain had experienced one of the deepest -recessions among European countries affected by the economic crisis. The Spanish economic recession began in 2008 during the world financial crisis of 2007–08. As the fourth largest economy within the European Union (EU) it is considered ‘too big to fail’ as well as ‘too big to rescue’. The recession resulted in a strong increase of the unemployment rate in Spain that surpassed 25% in 2012, the highest rate in western economies in that year the youth unemployment (those aged 16 to 24) reached a staggering 51 %.

The rising unemployment lead to an enormous increase in unemployment benefit payments, which partly explains why Spain’s public debt has risen from 69 % of GDP in 2011 to an expected 89 % of GDP by the end of 2012 10. According to the report of Eurostat, Spain recorded a Government debt of 99.20% of the country's GDP in 2015. Government debt to GDP in Spain averaged 51.97% from 1980 until 2015, reaching an all-time high of 99.30 % in 2014 and a record low of 16.60 % in 1980. In mid- 2012, Spain made a late entry in the European Sovereign Debt crisis when the country was unable to bail out its financial sector and in turn, had to apply for a or a €100 billion rescue package provided by the European Stability Mechanism (ESM).

Main Reasons: The root cause of the economic recession in Spain can be taken as a result of both exogenous and endogenous factors.

The most important factors being:

exogenous

 Price of raw materials.  The influence of the global financial crisis.

The most important endogenous factors being:  The real estate bubble.  The limited capacity of Spain to respond to the crisis.

The Burst of the housing bubble was one of the main reasons for the Spanish deep economic recession.

Housing bubble or real estate bubble is a long-term price increase of Spanish real estate prices. The Spanish economy experienced an economic boom since joining the Euro, Spain’s debt-to-GDP-ratio decreased from year to year. Spain could come up with an average GDP growth rate of 4 % from 1999 to 2007.

But the burst of the housing bubble dragged the Spanish economy into recession. The main fiscal problem in Spain was not the total amount of its public debt, but rather its total net foreign debt. The debt ratio that really matters in determining a country’s solvency is not so much the ratio of net public debt to GDP, but total public and private external debt. In the case of Spain, it reached 170 % of GDP at the end of 2012.

Adding to this was the increasing unemployment. And also the lack of price competitiveness prevented Spanish entrepreneurs to succeed in tradable goods industries.

So the Spanish entrepreneurs preferred to develop non-tradable goods industries such as real estate, construction or tourism. But Spain belongs to the Eurozone, so its economy has to compete with other European countries under a fixed exchange rate regime and this Spanish economy suffered more inflation and fewer productivity gains than the other Eurozone countries such as Germany.

Between 2008 and 2010 the domestic demand in Spain fell 7.6%, whereas in the other Eurozone’s it fell by merely 1.6%. Investment in housing was the most affected component.

Consequences: The impact of the economic crisis in Spain has been one of the most severe among the European countries which got affected. The government, financial institutions, households and also other corporations and non-financial institutions became highly indebted, unemployment reached unsustainable heights and the public deficit skyrocketed.  The financial crisis led to a deep recession in Spain and an increase in unemployment, which nearly tripled in five years. It even affected the productive activity, the labour market, public revenues and household economies.  The GDP growth fell from 3% to below -3% between the first quarter of 2008 and the first quarter of 2009.  The effects of the economic crisis were felt greatly in the way on the electricity generation due to the fall in electricity consumption.

 Spain underwent high immigration which came to an end in 2008 thanks to the global economic crisis. This was followed by a new period, in which foreign immigration significantly falls and migration begins to increase, starts and from 2010, Spain’s migration growth rate becomes negative.  With an employment rate of 55 %, Spain currently registers one of the lowest employment rates in Europe.

Youths face even lower employment rates than the rest of the population, and at the beginning of 2012, already every other Spanish citizen aged 16-25 years was without work. This makes the Spanish youths an example par excellence for a ‘lost generation’.  Economic recession is also responsible for the higher mortality rate. The average number of deaths in men and women increased after the recession took over.

Recovery:  Faster adjustments and reforms in the banking sector were emphasized by the Spanish government.  In 2009, a new institution with a key role in the process of bank restructuring was created, the so-called Fund for Orderly Bank Restructuring (FROB), with a main aim of strengthening the solvency of banks by providing funding to facilitate the processes of restructuring.  The Spanish government took several steps for labour market reform.  The Spanish government also emphasized the concept of a sustainable economy.

In November 2009, the Spanish Cabinet approved a draft Bill for the Law on Sustainable Economy, which is nothing but a new growth model for the economy based on innovation, technology, internationalization of business, competition and efficient public administration.

Spain even though it was affected by one of the worst financial crisis of its time the country managed to reverse the record trade deficit which had built up during the boom years, attaining a trade surplus in 2013 after three decades of running a trade deficit. It kept strengthening

during 2014 and 2015. The strong GDP growth was also registered in 2016, with the country growing twice as fast as the Eurozone average. The Spanish economy remained the best-performing major economy in the Eurozone in 2017 as well and unemployment rate heavily decreased over the years. In the second quarter of 2017, Spain recovered all the GDP lost during the economic crisis. The Spanish economy is among the bestperforming major economies in the Eurozone at the moment.

Greece Wants To Breath!

Then what caused such a Abraham turmoil to –Nithin unleash

Right now you guys would be wondering why a country of such heritage and remarkable history is included in a magazine that talks about crisis and depression!

The land of Gods, the home of Zeus, the land of mythology, kings, the legendary Hercules and the list continues. This is just a normal picture that comes into an average person’s mind when they hear about the country Greece. But at present, things aren’t as perfect and remarkable as it was in medieval times for the nation. The country is passing through its worst economic crisis in history and has reached a phase where it is almost ‘impossible’ to get back to its feet. According to prominent economists, the current economic backlash of Greece is far worse than what happened in the US during the Great Depression! The debt to GDP ratio is an insane 180 % for the country which is, in fact, one of the highest in the world. Since the crisis started, the European authorities have provided Greece with an astounding amount nearing to 320 billion euros. Debt repayment schedule has been made for years up to 2060!

One wouldn’t be expecting this from a country listed in the European Union which is being a dream destination for most of us right?

in a country known to be the birthplace of democracy and one of the best-managed civilization in history? The answer to a large extent would be EURO! Before & After the EU To understand the role of the Euro in Greece crisis, first, we need to understand the condition of this country before it joined the EU. Greece was considered to be a middle-income country with poor governance that in turn labelled it to be credit risk region in the early phase which in turn acted as a barricade to investors. The country joined the EU in 1981 and adopted Euro in 2001. This made a significant impact on the investors' mindset who then started perceiving Greece as a normal European country. This led to large cash inflows into the nation but little did they knew about the debt return strength of the country’s economy.

In 2009 the government announced the deficit rate to be 12.9% of its GDP while EU max limit was 3%.

Being part of the EU, investors expected the other European nations to support Greece for repayment which didn’t happen. This led to the imposition of high-interest rates on the country which in turn led to the current crisis.

Role of Euro Usually, when a country faces downfall in its economy, the first step it would initiate would be to lower the currency rate which would, in turn, make its products cheaper in the global market. This would attract more export opportunities, attract more tourism and gain more investment. With time this would enable the country to strengthen up and gradually increase its currency value. In the case of Greece, this strategy didn’t work out because of the sole reason that it belonged to the European Union. As Greece does not control the Eurozone monetary policy they weren’t able to devalue Euro.

Holding to a high valued currency, therefore, slammed Greece. It literally added fuel to the existing fire that was burning the nation!

Government is a Reason, Really?

Now you would be wondering why this wasn’t foreseen earlier and what role the government had in the overall scenario. Well, don’t be surprised if I point out the government itself to be one of the

major reasons for this crisis. At times, it is true that the helping hands make the most misery! The government had practised high levels of austerity to overcome the crisis. Austerity is defined to be a situation in which the government cuts down its expenditure to the maximum level during bad economic times. This is done to regain the rein of the economy to a stabilized level. Greece government had practised strict austerity measures with the hope of regaining the economy but miserably failed in its attempt. In fact, according to many economists, the implementation of these measures to this level, in turn, brought down the potential revenue that could have else supported the nation.

The inefficiency of the government to collect taxes was another reason that led the crisis to this level.

Impact: The crisis had an effect not only on the financial reserves of the country but more on the common man of the nation. Unemployment rates soared up to 25% which is the highest for any country in the EU. Not even the United States had faced this level impact during the great depression.

taking place is now called to be more of Greece’s crisis rather than Eurozone crisis. China and Russia are the only countries that are ready to lend to Greece but now it’s a fact that in the long run those would also be added in the debt chart which it couldn’t repay.

50% of the productive youths of the country are unemployed. Owing to this situation Greece faces a high level of emigration resulting from people literally fleeing from the country. This pushed the nation into a more strangled situation making it more difficult for the country to recover from the depth of the situation.

Added to this the diminishing bank deposits was another significant problem. The fear instilled within the people’s mind that Greece would soon leave the EU and as a result introduce their own currency caused them to withdraw their cash to a large extent. Majority of them feared that the implementation of this idea at this situation would introduce a currency of very low rate or value compared to Euro. This resulted in banks having the lowest deposits for decades. As a step to control this trend the government had to impose weekly withdrawal limits for each account.

Being debt-ridden at a major scale, no other country is ready to take over the role of providing a supporting hand to the nation. Even though it’s part of the EU, the crisis

The debt crisis has also led to the growth of a parallel black economy within the nation which comprises around 21.5% of the GDP. Thus, with the present scenario, it is very evident that the growth of Greece to a stabilized level would be a slow one which if not done with proper government policy implementation will lead to a more miserable condition.

Crisis goes viral: The European Debt Crisis - Neha Thampi The Great Recession of 2008-2012 has often been compared to the Great Depression of 1930 due to the economic crisis faced by countries across the world, and Europe was no different. Government’s debts had reached an all-time high, financial institutes collapsed, and the economy was on a decline.

Where did it start?

The start of the European crisis can be traced back to the situation of Iceland in 2008. Three of Iceland’s main banks – Kaupthing Bank, Landsbanki and Glitnr Bank had defaulted on $62 billion of foreign debt. The default led to foreign investors pulling out and between February to April one billion pounds were withdrawn from Landsbanki.

As these banks were the largest in the country, the government didn’t have the money to bail out the banks as a result of which the economy fell. The Krona (Iceland currency) depreciated, the stock markets crashed, and businesses went bankrupt.

Iceland’s economic meltdown affected the rest of Europe as Icelandic banks provided services across Europe and had also invested in several foreign companies. Over £840 million belonging to 100 UK local authorities was invested in Icelandic banks. Baugur, one of the largest private companies in Britain was an Icelandic company while Ice Save, the online wing of Landsbanki had frozen withdrawals during this period affecting depositors both in Iceland and the rest of Europe.

Causes The global economy was facing a slowdown post the US financial crisis of 2007-2008. The collapse of Lehman Brothers had created an air of distrust towards bank whose impact was felt in Europe as well.

Besides these there were other causes that contributed to the European crisis.  Property-Bubble A property bubble or housing bubble is a temporary situation wherein prices rapidly rise due to speculation and excess of demand over supply. It is accompanied by low-interest loans which further fuels demand. Eventually, the bubble bursts leaving people with huge mortgages. It also results in a fall in property value. In the UK housing prices dropped by 20 per

cent over 16 months in 2009. In France, the property bubble which began in 2000 was further boosted by tax incentives that were provided in 2009 to encourage purchase. Mortgage rates were as low as 3.5 per cent which lead to property prices sky rocketing and earned the French property market the title of the most overpriced property in Europe by 2011.  Account-Deficits Even before the economic crisis hit Europe, several of the Eurozone members had already run into current deficits. Current account deficit refers to the excess of exports over imports i.e. the country is paying more than what it is earning by importing goods to other countries.

Current account deficits can be due to several reasons like rising labour costs leading to a reduction in exports.

Latvia had the highest current account deficit amongst the Eurozone members which was mainly due to unit labour cost shooting up. Another factor for the rise in the current account deficit was the high expected growth. High expected growth lead to an increased import across Europe adding on to the deficit.  Lost-confidence In 2009 several European countries like Italy, Portugal, Greece and Spain were going through a financial crisis. The

economy of these countries was in a slump which led to investors pulling out. This created the impression of a lack of confidence in European businesses and economies further weakening the economy. Greece also had a crisis in leadership which only added on to the negative investor sentiment.

Recovery Measures The European Union (EU) as well as the governments themselves had introduced measures to combat the sovereign debt crisis faced by several of its members.

Some of these measures were as follows:  European Financial Stability Facility EFSF was created in 2010 by the EU as an agency aimed at providing loans to bail out the banks of debt-stricken countries like Portugal, Greece and Ireland.

It was created only as a temporary crisis resolution

measure and was replaced by the European Stability Mechanism (ESM) on July 2013. ESFSF raised funds by issuing ESFS bonds and other capital market instruments.  Austerity-measures Countries receiving assistance were required to implement austerity measures to check the possibility of incurring debts in the future. This included spending cuts in the government budget and increasing taxes. This measure, however, was not very welcome by the people, protests were staged stating that spending cuts would only aggravate the problems like unemployment.  European Central Bank (ECB) The ECB also introduced measures in addition to the bailout programmes like outright monetary transactions and quantitative easing to assist governments. In Outright money transactions, the ECB would buy out the government debts of countries with bailout plans that were under severe stress in the markets. Quantitative easing Programme was for buying the debts of the EU countries.

Impact The European crisis was a sum of several factors and showed how interwoven economies are both within the EU as well as outside. It brought to light issues like the

property bubble that the EU was facing as early as 2000 but took no active measures to correct. While the crisis is over with August 20th marking the last of the formal bailout; Greece being the last to receive emergency loans the countries are yet to recover from the impacts.

Prior to the crisis Ireland and Spain were seen as countries with the strongest fiscal positions; however, the crisis revealed how unreliable their revenues were and also shed light on the poor strength of the underlying finances of these two countries. Greece was the most affected of the EU nations and it took six years to attain growth in its GDP although the growth was only a modest 1.5 per cent in 2017.

The most impacted are the general public with persisting unemployment issues and they are also the ones bearing the brunt of the austerity measures. For instance, both Ireland and the UK have chosen to make cuts in the benefit payments to working adults while France and the UK chose to make protection on health and education.

Manipulator Or Stabiliser: China -Simi Gopalakrishnan The tit for tat trade dispute between China and the United States may do a little to protect the domestic producers in either country and could have “massive implications� on the global economy unless it is resolved, as opined by the United Nations experts. Due to the ongoing trade tensions countries which would benefit might be the European Union. Japan and Canada might also see increasing exports The yearlong ongoing war between the United States and China is a bane or a boon? The protectionist and retaliation measures are taken by both countries have escalated the trade tensions amongst other countries, resulting in a decline in the global growth rate. As per the forecasts predicted by the International Monetary Fund (IMF) China's GDP will be 1.6% lower as compared to the previous years.

According to Fitch Ratings, China's economy might face a slowdown of 0.4% from world GDP by 2020. This would be the weakest global growth rate since 2009.

When one goes up other has to come down. So is the principle of currencies as it is defined in terms of other currency. United Nations has accused China of manipulating the currency for their own advantages.

For about 30 years China has been devaluing its currency. Devaluation of a currency is done intentionally by the monetary authority of a country, unlike depreciation of a currency wherein the market demand and supply regulates its movement. The currency becomes devoid of its value during both devaluing and depreciating due to less demand for the currency.

Another important aspect to look into is the impact of devaluing or depreciating the currency on imports and exports of the country.

Let us first analyse its impact on exports. Exports of the country become competitive or an advantageous position for the country. Assume Mr X has exported goods at the rate of Rs.70 per $.

After devaluing he gets Rs.75 per $.

In this process, the exporter is able to earn a competitive advantage by getting more money for his exports.

The reverse happens in the case of imports as importer country needs to shell out more money in terms of import duty imports become dearer and costly. While China started devaluing its currency, it gave a favourable outcome to their exports,

however, this destabilised the trade patterns and created an unfavourable trade balance for other countries.

The devaluation of RMB in 1994 has paved the way to the Asian crisis of 1998. Due to this constant devaluation of their currency, it lead to the current account surplus as there was export competitiveness.

However, due to volatility, China faced a capital account deficit. The major reason behind this is the outflow of foreign reserves from the country. This can be analysed as the Chinese Government held huge foreign reserves but it did not hail any return on the investment. These reserves were dominated in the dollar and hence it had been a huge dependence on the US economy.

Unlike other currencies whose value is fixed by the market demand and forces, China has strictly controlled the currency policy and regulates its movements. China had fixed its exchange rate in 1995 at a rate which is more than 8 Yuan to $. This level was maintained until 2005.

Later it decided to liberalise its currency by introducing the trading band. The range of the trading band has increased over a period of time finally halting at +/- (2%) till 2014.

In 2015 the Chinese Government decided that this expansion would be on the basis of prior day’s closing value. It also decided that currency rate to be determined by demand and supply forces operating in the market thereby moving from a fixed to a floating currency rate.

However, China still maintains strict rules for the individuals and banks to hold foreign currency. Chinese government demands the selling of other currencies held by investors to China’s central bank who would incorporate those reserves into foreign reserves of the currency. The government would print the money required for use for those investors.

China holds a huge amount of reserves which is denominated in US Dollars, to regulate its currency in the exchange market. In order to strengthen Yuan China sells the foreign exchange reserves. In case the country wants to weaken its currency, it does so by buying foreign currency using its local currency. These reserves are mostly invested in US treasury bonds which are considered to be a safe instrument. The bank also uses other instruments including derivative contracts to regulate the value of the currency. Using these derivatives the banks don’t have to sell its reserves.

Adding to this the Chinese Central bank has maintained higher interest rates as part of monetary policy.

These rates are altered in order to combat a slowing economy. Due to the stringent policies, the country is facing a conundrum whether to maintain complete control of its currencies or let it have free movement.

Firms exporting from China have started looking for other alternatives by shifting their locations to other Asian countries. The risk of bearing

high tariffs have made them decide to relocate their firms. In these scenarios, India could try to create a strategic possibility by attracting those firms into India. In this backdrop, the ease of doing business, liberalisation rules of foreign Direct Investment, Make in India would welcome the exiting firms.

The war which began as the trade war is taking shape into the currency war. It is to be seen as to whether both the countries resolve the dispute or let the ongoing war take its course. Another alternative which China could think for is to wait for the presidential term of Mr Donald Trump to end to reconcile the tension between the countries.

What world needs in not geopolitical divisions but economic integration.

Our vision should be a free trade agreement which would develop the holistic bilateral relations between each other. Free trade always supports creating jobs an overall

development of the economy. A moderate decline in Yuan could lead to giving China an edge in the trade war by its economy gain especially if the US continues to escalate the conflict. Though IMF and WTO consider the manipulation of currency as an unfair trade practice to gain a mere advantage in the trade war. Also if the US further increases the tariffs imposed on all imports from China, forcing it to retaliate, the global economy could possibly enter a recession in three quarters.

Ominous signs: Does it all add up? investing impossible.

Globally,

concerning $13 -Samriddhi Bhatnagar It would be impossible even a few years ago, for high-yield or junk bonds to be oversubscribed for negative yields. However that’s specifically what’s happening now.

The Wall Street Journal recently issued a trope alert that high-yield bonds had gone negative. Many big bull investors are anxiously letting go of excessive amount of cash as a result of it’s risky factor and investing them in negative yielding bonds, instead!

This highly indicates economic slowdown across the world. It happens in every 20-30 years, where yields turn negative and hence, economic slowdown, even cataclysmic crashes across the world. So was the case in 1992, the biggest depression period. The Wall Street Journal recently issued an alert that high-yield bonds had gone negative. The report says 14 European corporations with junk bonds worth over €3 billion ($3.38 billion) are trading with negative yields. These bonds were meant to be high-yielding because they carried a high likelihood of default.

However, currently the logic of higher expected return for higher risk has been upended. This makes

trillion of debt is trading at negative yields.

Many United States corporations that issued leveraged loans, have quickly seen their bonds lose price. Obviously, lenders chasing yields have neglected risks.

This cannot and will not finish well.

Amidst all this, what's funny or tragic (depending on your perspective) is that investors, as per a research report, have upped their return expectations for 2019 to 10.7% from 9.9%. This is based on a survey of 25,000 individuals across thirty two countries. In other words, the survey respondents plan to build riskier investments, some of that too currently on yield negative returns, and that they expect central banks to underwrite their risks with even lower interest rates or nominal gross domestic product (GDP).

The crisis of 2008 happened, thanks to excessive debt carried by different financial institutions—some visible and a few hidden. But, the solution from central banks has been to incentivise even higher gearing of balance sheets. In less than a year after proclaiming the return to normalcy, central banks are moving and pining themselves to become even more bold with their financial policies.

All that their policies have meandered, is reckless risk-taking in money markets, a lot of leverage, greater difference and tremendous stress on savers, deposit holders and pensioners. These signs, the reckless policies, high leverage, shifting of risk on unknown investors and hoarding of cash equivalents, leave an imprinted mark of the history that the world, has already lived and pursued for more than a few decades, on each and every continent, especially the bulls!

Does this mean that through simply observing history and human behaviour, we could have predicted all the financial crises and bubbles?

Lets leave that to our own perspectives! But as we head into 2020—the year of Presidential and government polls in different countries—present trends in money markets round the world would form into a serious storm, convulsing most of them within the process.

The United States of America presidential election campaign might yet be the foremost fractious in its history, at a time when the economy could also be pushed into a recession by a crash within the stock market or the opposite way around, which will set out a dollar crisis. The rest of the world with its own political and economic issues will be unable to fill the leadership vacuum left by a politically and economically floundering United States of America, with a social media friendly baby on there hands, giving cataclysmic and underwhelming performance and creating trade turbulence all round the world.

Maybe the world might not be able to survive a harder blow this time, as we know too much now and are smarter for our good to create yet another financial doom.

THE SCAM THAT SHOOK THE MARKET!

1992: The Bull Scam Harshada & Preethika Sampath The year 1992, where the Indian stock market faced the largest falls in history due to Harshad Mehta scam. before the scam i.e. before the end of January 1992, India's one and only major indices BSE SENSEX was trading above 2000 points. At the end of February SENSEX was trading above 3000 points and continued to move up and reached above 4000 points in march. It was an unprecedented bull run, never seen in the history of a conservative Indian stock market, and was the result of the manipulation by Harshad Mehta. But the question arises who’s Harshad Mehta?

Big bull Mehta Harshad Mehta was one of the most influential and powerful men on the Bombay stock exchange. the peon's son who's born and bought up in Gujarat migrated to Mumbai with just Rs.40 in his pocket. in 1976 he somehow completed his graduation in commerce and started working in different companies for a couple of years.

Throughout time, he developed his interest in the share market and hence joined the stockbroker B. Ambalal. in 1984 he started his own firm with his brother named "Grow More Research and Asset Management" and became a member of Bombay Stock exchange as an official broker. In 1986, he started trading actively. By early

1990, he became a famous stockbroker and started knowing as “Amitabh Bachan” of the stock market. because of his "Golden words" and rapid growth in stock, a common man started following him blindly and lost his life savings in a single day.

What was the security scam?

In 1992, Harshad Mehta manipulated the stock market by drawing funds from banks fraudulently with worthless and fake Bank Receipts (BR) and subsequently using this liquidity to buy huge amounts of shares at a premium rate to drive their prices insanely high. that's how Mehta rose the stock price of Associated Cement Company (ACC) from RS.200 a share to Rs.9000 a share, a 4400% rise in price. Apollo Tyres, Reliance, hero Motocorp, Tata Iron & Steel Co.(TISCO), BPL, Sterlite & Videocon were some of his favourite stocks to manipulate the market. For this, he mainly used two instruments in scam i.e.

1. Ready Forward Deal (FR Deal).

2.Bank Receipts (BR). to know about what the RF deal, we'll first have to see what Government securities are whenever Government issues securities to cover its expenses, they are called

government securities for example "Bonds". In bonds, the government raises funds to cover its expenses, and in return, pay the interest to investors who invested in those bonds, which were compulsory for investment for banks in 1990s. In case, if any bank was in short of funds, then to generate funds, it used to sell its bond or government securities to other banks and would issue a BR( bank receipt) promising to deliver the money to the other bank at the termination of the 15 day period to regain its bond. in short, in the RF deal, one bank would give the short-term loan to other banks and keep government bonds of that bank as collateral.

To crack this deal, brokers used to work as mediators between banks.

Mehta was working as a broker and used to earn ample of illegal money out of RF deal. he was known for these loopholes and made the biggest scam in the history of the stock market. For example, Let’s say there were three banks, A, B and C, and a broker Harshad Mehta. if Bank A approaches Mehta to find a bank willing to lend them bonds because they were falling short of the funds. Mehta is not sure where the bonds would come from but used to ask bank A to sign the cheques in his name. (Signing of these cheques in the broker’s name was an illegal practice by RBI and Mehta made the most of it.)

Next, Mehta used to approach B or C and show them the BR issued by A and promise to deliver the money

in the next few days to which B or C used to agree because Mehta was well known to them. With this, Mehta and his coterie of brokers always ensured that they had some money in their hands. In fact, Mehta went a step ahead when he got fake BRs issued for himself. No Using this technique. Mehta had colluded with the banks to change the very nature of the government securities market.

Impacts of Crisis On April 23,1992 journalist Sucheta Dalal, exposed the Harshad Mehta scam and observed the money missing from government securities market. As the scam broke out, the valuations in the BSE got collapsed.

The mega growth which had been witnessed by exchange in one year came crashing down in a matter of days. People lost their life savings in the scam. Some investors were heavily leveraged and as a result committed suicide as a result of fallout.

This issue rose to national prominence and the institutions like

RBI, CBI and Parliamentary Committees had involved. The matter became even more convoluted when Harshad Mehta coughed up the name of Prime Minister of India, Shri P.V. Narsimha Rao as being beneficiary from the corruption and threatened to reveal many more names.

Finally the committee had found that Harshad Mehta was directly responsible for embezzling worth of Rs 1439 crores ($3 Billion) and causing a scam that led to the loss of wealth to the tune of Rs 3542 crores ($7 Billion).To this day, the Harshad Mehta scam brings up memories of unprecedented boom and bust which was never witnessed earlier by the BSE. Harshad Mehta had also siphoned off 500 Crore from the treasury of SBI. After a series of investigations, it was realized that SBI wasn’t the only bank left the lurch, even National housing bank (a subsidiary of RBI) got caught in the fray. The other banks soon realized that bank receipts they had trustingly accepted, were no more than scraps when Mehta couldn’t repay the promised amount. Crores had been milked from the banking system.

Banks started demanding their money back and Sensex crashed from 4,467 points in January to 2,529 points in August, wiping out over 1,00,000 Crore in market capitalization. On August 6, 1992 after the scam was exposed, the markets crashed by 72% leading to

one of the biggest falls and bearish face that lasted for 2 years.

By the end of April 1992, he was accused of having diverted money from the public sector, Maruti Udyog Limited (MUL) to his own accounts. From then until June 1992, revelations of misappropriations from banks and public sector units

by Harshad came into light.

Parliament went into a frenzy; a Joint Parliamentary Committee(JPC) was formed to investigate the matter, many investors lost a lot of their money and stock market crashed as quickly as it had risen, with banks demanding their money back.

Despite the promptness showed by CBI and Joint Parliamentary Committee (JPC) in uncovering this fraud, it took a while to put together criminal evidence against Mehta. It was only in October 1997, that the special court set up to hear the bevy of cases, related to securities scam approved 34 out of 72 charges brought forward by SEBI against him.

Almost all types of institutions, both private and public sector banks as well as foreign banks, have been implicated in the scam. Thus, the government’s emphasis on deregulation of the banking industry may not prove to be panacea it is looking for in the financial economy.

The public banks, although some have come out of the scam looking extremely poorly (eg. National Housing Bank) haven’t been the main instigators of the problems.

Their main failing was the advance of large sums without proper guarantees. On the other hand, it has been the private banks like the Bank of Karda and the Bank of Madura, which have been identified by the RBI as the principal sources of dubious bank receipts. Several foreign banks principally Standard Chartered and ANZ Grind lays, have been closely implicated in the scam.

Standard Chartered having advanced money without proper security while ANZ Grind lays allowed itself to be used as a go-between with Harshad Mehta, with what should have been

bank to bank transaction ending up in his personal account.

It is hardly necessary to stress that financial institutions should play a predominant role in the process of economic development. To bring about an all-round development of the economy, immense financial resources must be mobilized and channel them towards productive investment. It is time for the government and monetary authorities in India examine thoroughly the developments that took place in financial and political structure and find new methods to make the financial economy more effective and purposeful.

A snApshot of one of the MAnY, big crAshes of the finAnciAl world.

(Source: FST, CNET)

finAnciAl triViA

MONEY FOR THOUGHT : 92% Indians blame the government for their economic problems, while 17 per cent blame financial institutions, according to the Pew Research Centre. Also 58.9 is India's score on the National Geographic Society's 'Greendex', claiming Indians to be the greenest consumers in the world. This serves a question, i.e. if the consumers can choose to be cautious and environment healthy, are they being cautious choosing the other green for economic stability?

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