7/24/2019 Economical Crisis

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ECONOMY OF SPAIN AND OTHER EUROZONE COUNTRIES

SOME COMMON PRACTICES IN ECONOMY

Legal privilege of the Banks is the FRACTIONAL RESERVE BANKING (only 2% of the capital deposited is kept at the bank and this procedure can go on up to 50 times.They break the link between deposits and investments, putting money in a virtualseries of long-term investments and issuing short-term debt to counter its effect. This continuous refinancing makes difficult to keep track of any initial deposits or predict the estability of the markets.

CAUSES1. Increase in Savings available for investment 2000-72. Globalisation of finance.3. Easy credit condicions with a high risk lending4. International trade imbalances, partly motivated by the monetary unin and the countries' inability to regulate their own economies.5.Real state bubbles6.Global recession from 2008 to 2012.

Investors interest in getting higher yields (rendimientos) have caused bubbles to burst dropping asset prices.LIABILITIES (pasivos) have remained at full Price, evidencing unhealthy governme

nt solvency and banking systems.To regulate dficit some institutiones entered into contracts called CREDIT DEFAULTSWAPS (CDS) that cause the payment to occur in a particular DEBT INSTRUMENT (including GOVERNMENT ISSUED BONDS). Greece, Italy and other countries have tried to artificially reduce their dficits deceiving EU officials with the help of this DERIVATIVES designed by the Banks.THOUGH SOME INSTITUTIONS have profited from these transactions they have led tocaos.