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From: steiny@idsvax.UUCP (Don Steiny)
Newsgroups: net.invest,net.misc
Subject: Re: Re: "World Banking Crisis" -- what is it?
Message-ID: <161@idsvax.UUCP>
Date: Sun, 9-Jun-85 14:21:25 EDT
Article-I.D.: idsvax.161
Posted: Sun Jun  9 14:21:25 1985
Date-Received: Mon, 10-Jun-85 08:29:04 EDT
References: <11154@brl-tgr.ARPA> <2287@sun.uucp>
Distribution: net
Organization: Independent Consultant - C/UNIX, Natural Language
Lines: 87
Xref: watmath net.invest:670 net.misc:8083

>
> In article <11154@brl-tgr.ARPA> wmartin@brl-tgr.ARPA (Will Martin ) writes:
> >
> >What, pray tell, would happen in a "World Banking Crisis"?
> 
> I think when the administration speaks of a World Banking Crisis they really
> mean a domestic political crisis severe enough to change the party in 
> power at the next election.  Another Great Depression would certainly
> be sufficient but hardly necessary.
> 
> David Hough
*** 
	Maybe.  I think that what recently happend in the Midwest
where the governer had to declare a bank holiday show that there is 
a psychological aspect to banks too.  A banking crisis would occur
if people lost confidence in banks and tried to take all their money
out.  

	The "world" aspect of the whole thing can be explained by
a hypothetical example.   The non-hyphothetical part of the 
example is that Bank of America, the largest bank in California
and therefore one of the larger in the world, has a substantial
portion of its equity in loans to Mexico.   Suppose that some
internal situation in Mexico brought a government to power that
says, "FO&D," to B of A?   People who have their money in
B of A might reason that since a substantial portion of 
B of A's money was gone forever, they would not be able
to pay back all of the money that had been deposited,
and the money would be allocated on a first-come first-served 
basis.  Naturally, a person following this line of reasoning
would want to get his or her money out immediately.

	B of A would not be the only bank affected.  Sure the money
is federally insured, but where is the Federal government going
to get the money?  Borrow it from B of A?  I do not pretend
to understand how the government can insure against hundreds
of billions of dollars of defaults (a worst case, where several
countries default).   If the explaination is too complicated,
I doubt many people will buy it.

	Money is information and banks are information transmitters
and recievers.  The system of exchanging money for goods and services
and using capital to provide those goods and services is a vast
network extending over the whole world.  If the banking component
of the system ceases to function, the whole system will cease
to function, sort of like what happens if the power supply
fails on a Vax.   It could be like the depression, only worse
because there are more people now.  

	Note that the policies of the current administration
are modern day brinksmanship.  By keeping the interest rates
high in the US, inflation has been subdued.  It is pricy
for the US, because it makes US goods and services more
expensive than foreign goods and services and therefore
discourage foreign countries from buying US goods and 
services and encourage US citizens to buy foreign goods
and services.  It is pricy for countries that owe the US
money because the interest rates have increased on their
loans.  Kinda of sneaky when you think about it.  Loan 
someone money and then increase the intrest.  

	Such policies decrease standard of living of the
debtor nation and decrease the stability.  "When you ain't
got nothing, you got nothing to loose."

	From one perspecitive it seems like the overall policies
of the administration are slightly imperialistic.  When they
scream of communist takeover, they are afraid that someone will
get into power that will default on the loans.  The people
of the country are in a position where they have to give
most of their money to the US and they face the threat of
military intervention if they do not. The intervention is disguised 
as "saving them from communists," of course, but to the people on
the battleground, the difference is inconsequential.

	On the other hand, if interest rates came down dramatically,
most economic models predict that inflation would rise.  It seems 
that some pitfalls are built into the system.  If I were given
magical power to command everyone to do what I tell them to 
fix everything, I have little idea what I would do.  The one
thing I would look at first is increasing the prosperity  of
debtor nations.

pesnta!idsvax!steiny
Don Steiny - Computational Linguistics
109 Torrey Pine Terr.  Santa Cruz, Calif. 95060
(408) 425-0832