Money & Banking - economics 321 Coursework Example | Topics and Well Written Essays - 500 words

Money & Banking - political economy 321 - Coursework ExampleIt is in these circumstances wherein the so-called boom step to the fores. This boom in the financial sector as most crises have demonstrated is typified by a dainty that made much worse by credit and speculation. According to Kindleberger, this leads to a series of events such as how price increases leads to a rush for investing as profit opportunities loom large. This is an event that feeds upon itself the opportunities that promise profit would bring in a brisk wave of investors and that the positive feedback that is perceived in the process and the outpour of investment increases further profit, which then encourages further investments. He then explained how this leads to what Minsky called as euphoria and when the speculation variable is thrown in, it finally results in overtrading, which aggravate the fragility of the situation. As speculation and overtrading bring in more investors, the probability of crashes in creases as speculation for profit drives the manias or bubbles. During the feverish economic activity driven by speculative boom, a point is identified to emerge wherein prices start to level and uncertainty start to creep in. This situation, in Kindlebergers theory creates a tip of financial distress, which finally launches a steady downward spiral There is an inevitable burst as the market started the race to withdraw. In the event of a rush to liquidate, the bubble bursts and further panic ensues. The paradox will reach crisis proportions as financial institutions fail, prices decline and the number of bankruptcies spike. This stage, according to Kindleberger, is called revulsion when panic finally seizes the economic system, which is aggravated by liquidity, which, though orderly at times, can actually degenerate and bend out of control, feeding the panic further in the process. The Kindlebergers revulsion of concept is more popularly known in the nineteenth century as discre dit.There are other variables