|
No question, facing the (preliminary) climax of the financial crisis, there is no alternative to an intensive intervention by the state. However, those who permanently call for further regulation by and a more leading role of the state governments simply mix up cause and effect of the financial crisis: The state has failed, not the market.
Taking a closer look, one has to realize that there is no other international sector which is as strongly regulated as the bank market. The Basel I and Basel II Guidelines have been integrated into German law by the end of last year. Despite this immense regulatory framework, none of the last decade's crises could have been predicted, nor avoided.
Considering the dimension of the current crisis, call for further regulations are quite popular – but only to a certain degree acceptable. Because all these efforts will lead to a dead end as long as the determining reason for the ongoing crunch is not properly identified. We think that the origins of the latest developments are not to be marked in the corporate executive offices, but in the national governments and central banks of this world. The underlying reason for the current financial crisis is the unbridled increase in currency.
Both, the United States and Europe, have not been able to manage the increase in currency properly. Due to the fact that the gross national products did not grow accordingly – from 2000 to 2007 between 2,1% (Euro-zone) and 2,5% (US)– this development lead to the real estate boom in North America and to the liquidity bubble in Europe. Especially Alan Greenspan, former Chairman of the Federal Reserve of the United States, is to blame since he ordered a dramatic cut in interest rates which created the foundation for a boom which relied on credits only.
Therefore, if one does not want to repeat the mistakes of the past, the United States and Europe need to change their monetary policy in a fundamental manor. The Federal Reserve and its sister institutions have to focus on price stability alone. Even if this course might lead to a rising number of unemployment rates and other negative aspects, we need to act now in order to prevent the crisis from reaching a dimension which will be even worse.
If you have further questions considering this issue, please do not hesitate to contact us at mail@hbpa.eu.
|
