Forget about predicting what will happen in a stock market downturn.
History[ edit ] When the equity market bubble burst, in the early s, companies in many industrial countries cut down on borrowing funds to finance their capital expenditures.
They began running financial surpluses that they lent to other sectors of the economy. He suggested a number of valid reasons including "increased levels of economic uncertainty", "increased competition, especially in the information technology sector" and "financing of research and development".
Kliesen also argued that another reason for cash hoarding in the U.
NFCS firms, suggesting they may be taking advantage of low interests rates, and saving this cash as unused financial assets for future use.
They concluded that the "monopoly power of Japanese banks" persuaded non-financial corporations to hold larger cash balances. Firms might take fewer risks in countries with bank-centered governance but "banks' incentives might not coincide with those of shareholders".
NFCS firms' rationale behind increasing cash holdings and restrained capital expenditures is most often linked to policy uncertainty. The Policy Uncertainty Index was elevated at that time.
Asset prices, particularly house prices, in nearly two dozen countries accordingly moved dramatically higher. A "current account deficit means that a country is spending more than it is producing".
He argued that NFCS firms continued to be restrained in terms of capital expenditure for a variety of reasons. Equipment and software prices have dropped since allowing them to purchase more with less. In the United States, there is an oversupply of capital stock which includes physical capital, office space, plants and equipment in the U.
Existing capital is not depreciating rapidly and firms are running under capacity. They channeled resources to the financial account and asset liquidity, away from capital expenditures. Developing countries became net lenders on capital markets[ edit ] Developing countries became net lenders on capital markets.
BibMe Free Bibliography & Citation Maker - MLA, APA, Chicago, Harvard. The best opinions, comments and analysis from The Telegraph. This is an example page. It’s different from a blog post because it will stay in one place and will show up in your site navigation (in most themes).
United States and other advanced economies became net borrowers. University of California, Berkeley economist Obstfeld observed, that Bernanke and other proponents of the global saving glut account of the —09 crisis argued that large surpluses by China and other GSG countries had adverse effects on richer countries' current accounts and financial markets.
Capital flowing into the United States increased the value of the dollar making the imports of the US cheap in terms of dollars and exports expensive in terms of foreign currenciescreating a rising US current account deficit.
The Lucas paradox[ edit ] In Robert Lucas' classical paradox described in the article entitled "Why doesn't capital flow from rich to poor countries? For example, in in India, a poorer country at that time, the marginal product of capital should have been 58 greater than in the United States, a richer nation.
Lucas did not observe such flows. Lucas argued that the central question of economic development should be to replace these assumptions. Probably the most renowned boom-and-bust cycle was the surge of private capital flows to emerging markets during the 90's that ended with a succession of crises, starting with Mexico in and then touching East Asian countries in —, Russia inBrazil inArgentina and Turkey in The following boom to emerging markets during the 's was again interrupted by a sudden reversal of capital flows during the global financial crisis following the Lehmann Brothers collapse in Since capital flows to emerging markets are again at historical heights.
This highly cyclical nature of capital flows and the increased frequency of financial crashes have cast questions about the process of financial globalisation—i. You can help by adding to it.Christopher Bollyn is a well-travelled writer and an investigative journalist who has done extensive research into the events of September 11, , the conflict in Middle-East and the health effects caused by exposure to depleted uranium.
The best opinions, comments and analysis from The Telegraph. This is an example page.
It’s different from a blog post because it will stay in one place and will show up in your site navigation (in most themes). BibMe Free Bibliography & Citation Maker - MLA, APA, Chicago, Harvard. The best opinions, comments and analysis from The Telegraph. Janet Yellen, the Federal Reserve Board chair, is responsible for the economic success that Trump is taking credit for, but her successor will have to make some tricky calls.