Financial Crisis

When there is a loss of confidence in financial assets, investors around the world sell them at the same time, which results in a financial crisis. These assets will, of course. be worth a fraction of what they were before. Financial institutions that own these assets may not have enough money to cover them. This causes financial institutions not to lend to people, because they have no liquidity. Without credit available in an economy from financial institutions, an economy contracts.

This is how a financial crisis translates into an economic contraction. This is why governments step in to provide liquidity to the banks—quantitative easing—in order to keep the economy from further contracting on itself. A financial crisis can bring an economy to its knees. The government’s job is to ensure there is no loss of confidence in the first place, because this is what triggers a financial crisis.


Genius from The Big Short Predicts Next Financial Crash Is Coming Eccentric and hard rock–loving hedge fund manager Michael Burry (brilliantly interpreted by Christian Bale in the recent Hollywood movie The Big Short) warns that another major financial crash is…

Less than a decade after the biggest financial crisis since the Great Depression, over-zealous central bankers are risking a second economic collapse. The continuous credit creation and rock-bottom interest rates in the U.S., China, the EU, and Russia are meant…

As the Greek debt crisis winds down, world markets are reverting to business as usual without acknowledging a fundamental truth: Greece was only the beginning. Many countries have used nothing but debt to fuel their growth, laying the groundwork for…

There seems to be a trending theme in today’s economy—borrowers cannot pay their debt. This time, the spotlight is on oil companies. Low oil prices have forced many energy drillers to the financial brink, and analysts fear a wave of…

On Sunday, June 7, 2015, the Government of Iceland agreed  to present before Parliament two bills of legislation sponsored by the Minister of Finance and Economic Affairs. Together, the two bills lay the foundation for a comprehensive strategy for capital…

Credit card companies are some of the best indicators in the global economy. Visa Inc. (V) just reported a pretty decent quarter. While earnings were down comparatively due to a one-time charge, adjusted earnings handily beat consensus. The company’s fiscal…

Now that the Dow Jones Industrial Average has fallen 1,035 points (six percent) from its mid-September peak, the question investors are asking is “how far will she go?” For small-cap investors, the drama is greater, as the Russell 2000 Index…

Getting a sense of where stocks are going to go in the year ahead is always difficult with the major indices at their all-time highs. The fundamental backdrop is still very favorable for equities. While the Federal Reserve has put…

According to the U.S. Congressional Budget Office, next year, the government is expected to incur a budget deficit of $469 billion and then another budget deficit of $536 billion in 2016. (Source: Congressional Budget Office web site, last accessed July…

Everything in the stock market experiences its own cycle of enthusiasm among investors. And this is especially well illustrated among speculative issues. There was a time only a few years ago when some of the hottest speculative stocks were in…

I’m going to put aside my daily ranting about the stock market and the economy today to bring what I believe is an important story to the attention of my readers. There is no doubt you’ve heard about how poorly…

It’s a difficult environment in which to be constructing new equity portfolios right now, mostly due to the very simple reason that the stock market is at an all-time record high and it’s likely that monetary policy will change soon.…

With the Dow Jones hitting 17,000 being pretty likely in the not-too-distant future, from there, it’s only another 18% or so until the Dow hits 20,000, which is pretty incredible. These numbers seemed so unrealistic just a few years ago…

The Dow Jones Transportation Average keeps powering ahead, and the rest of the stock market is very close behind it. The strong performance of this index is confirmation of further Dow theory gains. The Dow Jones Industrial Average has been…

This stock market continues to show material resilience as financials have turned a bit and are helping the S&P 500 index. Wells Fargo & Company (WFC) just hit a new record-high on the stock market with a forward price-to-earnings ratio…