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Sample Essay on Crises in "The Ascent of Money"

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Sample Essay on Crises in "The Ascent of Money"

In the video series dubbed “The Ascent of Money’, Niall Fergusson gives a comprehensive collection of observations and narrations about the development of finance within the world economies (Ferguson 1). Key crises that can be analyzed in terms of commonalities and distinctions from this video series include the Great Latin American Debt crisis, the Asian crisis, and the current global financial crisis.

The Great Latin American debt crunch took place in the 1980s where numerous Latin American nations were unable to pay back their foreign debts. The Asian crisis was a sequence of legal tender depreciations and proceedings that extended through Asian markets in 1997. The global financial crunch has been caused primarily by Americans borrowing too much from China.

Commonalities

All financial crises analyzed above stem from countries taking too much debt from lending institutions and not having appropriate controls in place to limit abuse. The Great Latin American debt crisis occurred because countries were allowed to borrow without any proper repayment plans. The Asian crisis was also as an outcome of disproportionate debt that was not put to good use (Ferguson 1).

In all the three crises, the financial sector had grown complex, and its leaders had become too superior that they could not be controlled. The establishments and the services they offered became problematic to oversee and regulate. Even interior controls of financial establishments failed in all the cases. The system-wide threats involved with the financial institutions became much greater than before, and the payment strategies added to the buildup of financial threats.

The central banks of the regions faced with the crisis had the obligation of upholding financial stability by having a proper administration and regulation of financial institutes and markets. However, the supervisory structures that existed in many of these regions were fragmented, and this led to the absence of responsibility for system-wide risks. In all the three crises, the regulatory and supervisory structures failed to keep the pace with financial markets evolution. The fact that financial institutions were also becoming large as compared to the state of the economy exposed public finances to large risks (Ferguson 1).

Differences

The economic expense of the current global crisis is much more significant than the past crises in terms of output losses and public liability upsurges. The average output loss is 25% of GDP in the global financial crunch as paralleled to an average of 20% in previous financial calamities (Ferguson 1). The differences reveal an upsurge in the size of financial structures and crises being concerted in high-income regions.

In both the Great Latin American crisis and the Asian crisis, the direct fiscal costs to support the financial sector was quite high that is at 10 percent of GDP while the one utilized in the global financial risk is 5% of GDP (Ferguson 1). The global financial crunch has received swift policy action, and momentous indirect funding is being given to financial systems through fiscal and monetary policy.

Policy responses consist of resolution and containment tools in all the three crises, but the implementation process varies among the three crises. Policy makers have utilized extensive liquidity guarantees and support in all crises, but it was implemented more quickly in the global financial risk. It took policy creators approximately one year from the period of liquidity support before comprehensive recapitalization was achieved. In the global financial crunch, recapitalization processes are implemented at the same time of the liquidity backing (Ferguson 1).

 

 

 

 

 

 

 

 

 

 

Works Cited

Ferguson, Niall. The Ascent of Money. 2015. 22 September 2015. 

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