KÜRESEL POLİTİK EKONOMİ - Deneme Sınavı - 14

Inflation can be defined as follows: A continuous increase in the general price level of goods and services.

The decline in the consumer demand and the investments of the firms, the decrease in the living standards due to the increase in the unemployment rate, the continuation of the uncertainty in the financial markets for a long time, and the decrease of the value of the stock prices and the national currency in parallel with all these, inevitably  may cause an economic crisis in the countries.

The main elements and characteristics of financial crisis can be listed as follows:

Uncertainty in the financial system changes expectations to a great extent,

Financial institutions worry about cash problems,

Decreases in profit will create a base for bankruptcies,

Increase in interest rates and contraction of economic activities,

Sudden and unexpected emergence,

To cause the crisis to grow or to cause a new crisis by spreading to another country,

To create new opportunities besides danger and threats,

The duration depends on the measures to be taken,

Reduction of the portion of capital evaluated in real production,

Speculative international capital movements

Wrong economic policies and structural deteriorations,

Increase in public deficits, current account deficit and savings deficit,

Excessive exchange rate,

The banking system may be problematic, unchecked, and bank panics occur

With Kaminsky, Reinhart, and Lizondo, many academic studies has conducted to identify crisis indicators.Some of them are as follows:

* Capital Account: International reserves, capital flows, short-term capital flows, foreign direct investments, differences between domestic and foreign interest rates,

• Debt Profile: Total external debt, external debt of the public sector, short-term debt, distribution of debt according to interest and credit, foreign aid,

• Current Account: Real exchange rate, current account balance, foreign trade balance, export and import, export price indices, savings and investments,

• International Variables: Real growth rate, interest rates and price level,

• Financial Liberalization: Loan growth, change in money multiplier, real interest rates, spread between bank borrowing and deposit rates.

The reasons leading to the banking crisis can be divided into two groups as macroeconomic and microeconomic reasons. We can list the macroeconomic factors that play an active role in banking crises as changes in interest rates, sudden changes in supply and demand, inflation, growth, fluctuations in exchange rates, change in capital movements and financial liberalization. In addition, we can list the issues such as insufficient supervision and regulation, management errors, lack of transparency, insufficient capital, state intervention to banks, high guarantees given to deposits, loans provided to the participants and excessive risk taking through derivative products as micro-economic reasons (Balı & Büyükşalvarcı, 2011: 20).

The inadequacy of these two models in explaining the Southeast Asian Crisis in 1997 led researchers to develop new models. The fact that after it emerged in Thailand, spread to other Asian countries, Korea, Indonesia, Malaysia and the Philippines, which had similar characteristics, led to a new model called the third generation (contagion) crisis models. These models are Third Generation Models (Contagion Crisis Models) that see crises spread as an infectious disease (Ural, 2003: 14).

The economist Fisher, who states that the most important factors leading to this crisis were excessive borrowing and deflation, identified nine factors (Balı & Büyükşalvarcı, 2011: 109-111):

Sales made to liquidate debts and to make ends meet,

Reduction of money supply due to non- payment of bank debts,

Decrease in asset price levels,

Start of bankruptcies due to the decrease in the value of the workplace,

Decrease in revenues,

Reduction of production, trade and employment,

Loss of confidence,

Saving money and not making new expenditures,

Start of deflationary process with decreasing nominal interest rates

Moratorium: The Borrower declares that they cannot pay all or part of their debts due to the loss of their ability to pay.

We can list the most important financial crises in and after this period in Turkey and in the world as follows (Al, 2016: 21):

1992-1993 European Exchange Rate Mechanism (ERM) Crisis,

1994-1995 Mexican (Peso) Crisis,

1994 Currency and Banking Crisis in Turkey,

1997 South East Asian Crisis,

1998 Russian Crisis,

2001 Argentina Crisis,

November 2000 and February 2001 Currency and Banking Crises in Turkey,

2008 Global Financial Crisis,

2010 Greek Government Debt Crisis - Euro Crisis,

(X) Crisis

The transfer of public resources to the banking sector caused a reaction when the citizens of the country lost their homes because they could not pay their loans. There were protests in 41 US states (Atasever, 2016: 66-68). In the following process, Barack Obama, who was elected President of the United States, took over a very challenging financial situation. For the purpose of structural reform, the National Bank Supervisory Board was formed, audits tightened, and banks’ credit and deposit services were restructured. Finance companies have been obliged to increase their equity and thus they are able to compensate the damage in difficult situations (Bocutoğlu & Ekinci, 2009: 66).The reflection of the crisis on macroeconomic indicators was inevitable. The fall in house prices and the volatility in interest rates have emerged normally. However, growth rates decreased, industrial production decreased, trade slowed down, unemployment increased due to the effect of the bankrupt banks. As it can be understood from the figures only, the 2008 Mortgage Crisis is considered to be the first Global Crisis to take the whole world under influence (Kutlu & Demirci, 2011: 125-127).