Conference Paper

26 Pages   |   6,188 Words

Abstract

The global economies have suffered six years from a global financial crisis. The main point of the initiation of this crisis was global financing. Global financing can be seen as a positive concept from one perspective. A country’s gap between the earnings and the expenses can be covered through these loans. It can be seen in a highly optimistic context that the country would invest this loan amount into the growth activities. It would invest in the country’s industries and gain profit from these industries. Looking at the broader perspective, how does a company profit from its industries? It exports to other countries and gets its profit from them. However, looking more closely, how does the country that buys the exports get the money through loans from other countries? The countries have to pay back the loans with an added interest. They think, in an optimistic perspective, that they would earn enough to pay back the interest. What if they do not earn enough? They take more loans to cover the interest expense from the first loan. The vicious cycle continues until a crisis occurs, and no one can repay their loans taken from the other. This paper gives a detailed analysis of the global financial crisis and discusses the causes of this crisis. It discusses Motorola and the Chinese case and gives propositions in the economic context to avoid such situations in the future.
 

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Table of Contents
Abstract 2
Literature Review.. 3
Applications. 10
Business Setting Application. 10
Introduction to Company. 10
Impacts of the Global Financial Crisis on Motorola. 10
Declining Pay. 10
Financial Figures. 11
Propositions. 17
Conclusion. 18
References. 18

Literature Review

The world has experienced a transformation in the definition of globalization from being a technological concept to a financial one. Putting it another way, the ease and smoothness to interact and trade with each other has played a part in strengthening the economic and financial vibes between countries. The effects of increased inter-cultural transactions have extended to both negative and positive sides; it brings opportunities and investment for the countries and also brings a pressure to the economy in form pressure, sense of competition, higher costs, more tendency of financial crisis and uncertainties. The topic of are the net effects positive or negative has been a part of a stirred up debate among analysts (Bernanke, Bertaut, DeMarco, & Kamin, 2011). The current literature review is also focused to scrutinize how the financial crisis of 2008-09 were initiated due to the financial globalization. 

First of all, the paper will discuss the events that led to the instant globalization of financial markets and the disruptions that it caused which then activated the worst ever financial crisis after the Great Depression of 1935. In the process, the paper will also shed light on the regulatory mechanisms of national governments that became an integral part in aggravating the whole episode(Lane & Milesi-Ferretti, 2008).Second of all, the paper will turn towards the lessons that the governments around the world learned from the devastation of the global economy forming the basis of their future plan of action in ensuring balanced approach towards the matter.Finally, the paper will present a conclusion summarising the past and future of the financial globalization by outlining the recommended strategies to save the world economy from such grave shocks in future.
The paper, Benefits and Risks of Financial Globalization: Challenges for Developing Countries, highlighted the significant improvements in the financial structure that persuaded many countries to globalise their financial institutions.  Greater provision of funds, increased efficiency, more transparency in international accounting standards, improved corporate governance are just some of the convincing factors for institutions to globalize (Stulz, 1999). Also, diversified portfolios of foreign banks carry less risk bringing down the negative shocks to the home country; adopt best practices in every field enhancing the overall standard of the banking sector; possess power over the governments saving them from bail outs in times of solvency(Mishkin, 2001).
Another research presented various new factor that might be responsible for the financial globalization across the world. According to the research, the most responsible factors were the low capital cost and increase in its raising. Especially for developing countries and emerging economic of Latin America, East Asia and Eastern Europe that started to emerge due to financial liberalization. In 1991, Euro was introduced, playing a vital role in internalizing the developed economies when they started operating on a common medium of exchange. In just fifteen years, 28% and 47% of equities and debt securities of developing countries respectively were issues abroad from 1991-2005. The rate for developed countries in the same period was 8% and 35% respectively (Gozzi, Levine, & Schmukler, 2009).

In his fascinating book, Mishkinprovides convincing arguments and reports the benefits of financial globalization. According to him, a strong financial system play the part of the sine qua non for the economic growth of an economy and if there is a lack of financial intermediaries, it might result in poor flow of financed between the investors and the savers that might affect the efficiency of the capital market. He also gave importance to the imperfection of the global financial market, and acknowledges the fact that if financial liberalization is not handled properly, it can result for the economy in a negative way.  He has also given much time to discussion about the financial crisis of Mexico, South Korea, and Argentina and discussed how there crisis can be handled with the help of financial reforms. A prudent response to the unexpected financial crisis is not to put to halt to the liberalized policies but to scan the system for any policy reforms (Xafa, 2008).
It is challenging to classify the factors responsible for financial integration in a limited period of time as several factors ranging from legal berries on the boarders to other facilities has been playing a vital role. Research on the liberalization of the financial system of Europe reports that the innovation in the field of financial activities and accelerated capital flow is responsible for the financial globalization among the advanced economies (Lane & Milesi-Ferretti, The Drivers of Financial Globalization, 2008).

Now to speak of financial innovation, new types of investment, newest introductions to the variety of investment vehicles and the rapid increase in less controlled types of managers of assets all have fuelled international commerce. The launching of the euro and the deregulation of the economic system of Europe has sown the seeds for further growth in international trade (Lane & Jay, Financial Exchange Rates and International Currency Exposures, 2010). Controlling synchronization and the liberty of institutional actions played a crucial role in the amalgamation of the European economies and financial systems while the common currency zone led to fleeting increase in international trade in capital and financial markets.
It is a question that whether commerce beyond the borders has played a part in the instigation of financial crisis across the globe. There are two possible, identifiable channels through which the creation of a single global financial market led to the financial situation which culminated in the financial crisis. First of all, the huge inflow of foreign investments stoked the ultra-accelerated advance in the market for asset-backed securities in the United States which was the beginning point of the economic anxiety back in 2007-2008. As Acharya and Bernanke reported, Banks based in Europe were key buyers of asset-pledged securities. Secondly, globalisation of financial markets allowed for hasty growth in the statements of financial position of several banks. All of this happened at two levels, regarding banks with global operations, the size and spread of these increased rapidly, making the policing of risk profiles very difficult for national controllers. Along with this, credit grew rapidly in several countries due to the local banks expanding by entering global markets of wholesale. Thirdly, the increasing part played by emerging economies in the world’s financial map also led to a mounting of weakness in credit markets. Particularly important is the fact that the result of demand for less risky debt assets and the multiplied options for equity in emerging market countries may have boosted the securitisation bang (see, amongst many others, Bernanke et al 2011).

Although, it is in no way possible to quantify in ascending order all the factors responsible, but it can be said that the financial crisis was mainly initiated due to the uncertainties and vulnerabilities of the financial market of the world. Moreover, it won’t be wrong to the say that the intensity of the financial crisis got stirred up due to the financial globalization in form of irregularities of the banks and credit markets, financial limits and other capital regulation (Borio & Disyatat, 2011).

When the financial crisis hit the global market, the effects were different for various economies across the globe; for some countries, it generated benefits while some countries had to suffer consequences for a longer than expected time period. It is also argued that the emerging economies and their financial activities and capital flows were one of the most vital shields against the financial upheaval (Gourinchas & Obstfeld, 2012).
Coming now to the public policy, the paper, Global financial crisis and emerging issues for public policy, examines its role in aggravating the financial crisis. These noteworthy features warrant an examination of the role of public policy in causing the crisis. First, there is a recognition that the global economic balances characterized by persistent high levels of current account surplus in some countries and current account deficits in the US provided a fertile ground for the crisis. Some analysts attribute global imbalances to the excessive dependence on a single reserve currency (the US dollar). Second, the rising inequalities in several countries could have resulted in a deficiency in the stability of aggregate consumer demand. Third, there was a prolonged period of loose monetary policies, which led to serious under pricing of risks, and possibly asset bubbles. Fourth, the central bankers were aware of the under pricing of risks but they believed in the self-connecting mechanism of market forces, and they also believed that in any case risks were truly dispersed due to financial innovation. Fifth, the public policy did not assign a priority to financial stability and the central banks were mandated to focus on prices stability. More, monetary policies were perhaps pro-cyclical. Hence, it is argued that there was either a failure of ideology and understanding or other political economy considerations that led to the crisis.

Also,to failures on macro-front that facilitated the crisis, the more proximate and immediate causes relate to regulation of the financial sector. First, the regulatory framework tended to be pro-cyclical rather than counter-cyclical. Second, the regulators did not have the skill to cope with financial innovations, especially those related to securitisation. Third, there was an excessive reliance on principle-based regulation or only self-regulation. Fourth, the regulators were content with regulating individual institutions on asset quality, thus ignoring the systemic issues such as liquidity and funding of assets. Fifth, they ignored the balance sheet items of banks and shadow banking was indulged in the poorly regulated segment of nonbanking financial companies, which included investment banks. In particular, originate and distribute models of banking encouraged irresponsible lending. Finally there was a competitive race to the bottom in regulation by the financial centres, especially in the US and UK, who were keen to attract financial activity. More, it can be argued that while financial markets and institutions were global, regulations were national.

The international crisis has reminded us of the importance of a web of reforms at both global and country levels. Two vast categories exist for this – Implementation of reforms that decrease the chances as well as the harshness of future crises and policy changes that make macroeconomic and financial resistance better if a crisis does occur. At the international stage, the most important task is to maintain and improve the parameters of the international financial structure. The goal of reform is well-understood in this case, and includes that well-organized control and assessment of a multitude of global banks that support the entire international financial structure. At a simpler level, this would be encouraged by a more profound understanding base about the activities of these global banks at all levels which will definitely require much more thorough data about the undertakings of these banks and includes inclusion of offshore global financial bases into data about across-the-border financial undertakings (Lane & Milesi-Ferretti, 2008). In the same way, improved analytical replicas of global methodical risk are required to fruitfully interpret such a large amount of data and make suitable preventive measures (Gourinchas & Obstfeld, 2012). Another factor responsible for the global reforms is the making of resilient global security nets. Despite the recent rise in its means, the lending power of IMF has not risen quickly enough with the growth in international financial circumstances.
 

Institutional reforms on a global level are necessary but not sufficient for the financial betterment of the European region; regional level integration is also necessary for the development of the financial system of the region to ensure that the system is operating under a strong and stable structure. But on the other hand, even if the financial system of the region is aligned and integrated, it might still be possible that the residents of the region needs to face the repercussions of global financial crises. It is therefore argued that the governments should by playing the key role in correcting for the financial uncertainties and a parallel policy structure should be formed that aligns with the international policies. While the government of a country is designing a macroeconomic policy and preparing a guideline for the policy reforms, two major point s should be given an account to. The first point is that as the global crisis has made it clear that the financial instability can occur at any time whether it com in form of domestic credit issue or a foreign one; economies should be proactive if they want to handle these uncertainties. A proper fiscal policy should be designed which gives a proper account to both output and credit side of the economy (Benetrix, 2011).

On the other hand, it is also vital that the factors and variable are kept in control that have the tendency to control the financial condition of the economy. Several economies, no matter if they operate on an independent currency take a good amount of foreign in their hands so that they can face the financial problems efficiently. It is also suggested that the fiscal policy, I if designed and maintained properly can bring the negative effects of financial shock down and can help manage the financial constraints to some extent (Reinhart & Rogoff, 2009).
Another way forward is presented in the paper, Global financial crisis and emerging issues for public policy. First, what is the right balance between the state and the market? That unfettered markets, especially in the financial sector, can cause havoc is now established. But it is not clear that empowering the state will necessarily be right since the crisis is a reflection of the failure of public policy also.Second, how to evaluate costs and benefits of the regulation of the financial sector, and in the process, how to redesign the domestic framework for regulation? It is evident that the costs of compliance with regulations incurred by market participants were exaggerated, and the benefits to the economic system and society at large of more active regulations seriously underestimated.

Third, what should be the appropriate links between growth, functioning of the financial sector and the other sectors of the economy? It is clear that the financial sector cannot be an end itself and that it has an incentive towards a multiplicity of transactions since the incomes of many market participants are enhanced in the process.
Further, how globalized should finance be in view of the fact that the welfare of citizens continues to be the responsibility of the government? What is the appropriate policy space needed at the national level to discharge the responsibility? Globalization of Finance provides scope for interest rate arbitrage, regulatory arbitrage and tax arbitrage. Finally, public policies are essentially products of political economy considerations at the national level, and such public policies tend to reflect the national interests in their interaction with other countries.
It can be deduced from the history that relying on either of them blindly without any precaution is not a rational option. The previous examples of crises is enough to convey the possibility of government and market failure.  Since market play a major role in the economy and growth, the governance of an economy should play its part in creating a good environment for the markets so that the vulnerability level can be minimized.
On macroeconomic management, the crisis has exposed new risks and underscores both the difficulty of managing them and the need to buffer shocks.  With the end of the Great Moderation, the developing countries will need to take into account risks in developed economies as they set their policies. On global integration too, the lesson is that even growth-promoting integration brings risks even as it mitigates others, and that countries may need to adapt their export-led growth strategies to accommodate global rebalancing.  In the area of finance for development, the crisis underscores the dangers of relying excessively on debt financing and may reduce the allure of foreign finance and financial liberalization.  And in the area of public spending, it will further strengthen the move toward a focus on the efficiency and quality of spending in the social sectors.  In short, the global crisis does provide new information in key policy areas, but it need not provoke any crisis of confidence in the current state and direction of development thinking. 
 

Applications

During 1929-33, the global depression had negatively affected many countries, industries, and individuals. The 2007 Global financial crisis has been stated as being worse than the global depression. The securities that were before considered to be highly secure for investment were not that safe. The credit crisis of 2008 had further caused the financial crisis to worsen. The global financial crisis had resulted in a threat of the collapse of major financial institutions such as banks, mortgage, and stock markets around the world. The ignition to the global financial crisis was the credit crisis. Due to the sudden decline in the interest rate, the Federal Bank increased the capital in the market. Since the investors wanted to earn interest, they found a new way to do so by investing in mortgage-backed securities (Jungmann & Sagemann, 2011).

Business Setting Application

The global financial crisis had played a huge role in the failure of many businesses. They had faced many consequences of the financial crisis. The increase in taxes and the loans taken up by the company had caused the company's stakeholders to make some logical moves; although these logical moves did not always contribute to the betterment of the company. The company that has been taken as a subject of study of this topic is Motorola.

Introduction to Company

Motorola is a very large market share holder in the mobile phones industry. Motorola is now owned by Google and is in its plans for increasing its business to further growth heights. The company has an innovate component to it thatdifferentiates it from its competitors. Its innovative procedures are going to lead it to its heights (Motorola, 2015). Motorola was an inventor of various mobile phone technologies including the first mobile phone and base station also. The company has been present for 80 years. It has a strong base and structure to the company(Motorola, 2015). This section will assess the factors that impacted such a strong firm about the global crisis.The impact was so significant that it was reported as a cause of the huge impacts in the financial figures of the company.

Impacts of the Global Financial Crisis on Motorola

Declining Pay

There has been a discussion about the companies declining the pay of their employees to keep up with the taxes that the government imposes to pay off its debt and interest owed to other countries. This decline in wages shows that the companies are struggling to keep up with their taxes. Chances are that the company is facing internal debt obligations of its own and increasing the tax would cause the company to lower its expenses to pay the taxes as well as pay off the interest and the borrowed money. In a book called 'Global Economic Crisis' by the global economic crisis resource centre, it is stated that companies such as Motorola suffered due to a decline in the pay. It was stated thatthedecline was about 7%. The cause of this drop is stated to be the declining share prices (Global Economics Crisis Resource Center, 2010).

Supplies

The Motorola 2008 annual report explicitly states that the global financial crisis could lead to a reduction of supplies or adversely, an increase in the prices of the supplies that could increase the final price of the product. It was also stated to impact the financial results(Motorola, 2008).

Increase in Risks

According to the annual report 2008, it is said that with the globalfinical crisis, the uncertainty of markets have increased. It is stated that it may create economic or political uncertainties(Motorola, 2008).  Focusing on the political uncertainties and the understanding from the literature review, it can be gauged that when governments try to act to protect the economy from financial risks of interests, it may reduce their followership and they might become unpopular among the masses. This can be proved by the credit crisis in that the Federal Bank had declined the interest rates to near zero. This policy had affected investors adversely, and they started looking for other alternatives to invest their money. It was stated that Motorola could face difficulty n obtaining credit insurance. The credit insurance had mitigated the risk associated with the cash transactions before the financial crisis. However, Motorola was not going to get any insurance before the volatility of the financial markets is stagnated. Furthermore, it was stated that the pensioners and the retirement plans.

Decrease in Sales Order Compliance

It was stated that due to the effects of the global financial crisis on the banking system and financial institutions, there had been very significant effects on the credit markets. Since many companies rely on the bank loan and credit to invest in new opportunities, it was stated that Motorola's business has impacted in several ways. It was stated that there might be some orders cancelled due to the non-availability of credit, therefore, investment. Furthermore, the businesses that Motorola funded were stated to be potentially ceased until the crisis is resolved, or some other alternative to investment is discovered. Some other potential problems were also listed that included the impact on key suppliers. It is evident that the suppliers are also part of the economy, and the financial crisis would have impacted them as well. This would mean the pressure from the supplier side of operations also.

Financial Figures

It can be seen that the segment sales for the mobile division have gone down 33% in 2007 when compared to the 2006 figures. The comparison with the already in loss 2007 figure with the 2008 figure revealed that the figures had worsened. The sales in 2008 had been 36% lower to the already lower 2007 figures. This reveals that the financial crisis had a huge impact on the sales of the most significant division of Motorola. Furthermore, it can be seen that the year 2006 had shown a net profit whereas, 2007 reportedbynet loss. The loss further increased in 2008 because of the main initiation of the global financial crisis had begun formally.
 
  Years Ended December 31   Percent Change
Dollars in millions 2008 2007 2006   2008-2007 2007-2006
Segment Net Sales $12,009 $18,988 $28,383   -36% -33%
Operating Earnings(Loss) -2199 -1201 2690   83% ***
 
 
Source: (Lin, Edvinsson, Chen, & Beding, 2013)
When compared to the net loss, it can be seen that the year 2008 showed huge losses. The year 2007 had losses, but comparing to that of 2008, these losses seemed insignificant. 2007 had 49 million dollars of losses and 2008 had 4244 million dollars worth of loss due to the financial crisis. It can be seen that the costs that have increased to result in this loss is in the other charges. The amount that was $25 million in 2006 increased to $984 million in 2007 and $2347 in 2008.

 
Source: (Motorola, 2008)
According to the annual report, it was statedthat these charges comprised of amortization of intangibles. The intangibles that can be amortized are the goodwill, value of the human capital's workers knowledge, and trademarks (Investopedia, 2015). Furthermore, a huge amount was spent on legal settlement of insurance. As mentioned before in the report that the insurance companies were not willing to insure the cash transactions(Motorola, 2008). It is said that insurance companies have a very complex liability structure. This complexity was the weak point of these companies in the financial crisis. Their liability structure comprises of non-financial liabilities and financial liabilities. The financial liabilities are the credit protection of companies. With the financial crisis, the insurance companies were pressured by mostly all of its customers to give them the insurance amount on this credit loss (Tower & Impavido, 2009). This is the reason the companies faced costs related to the insurance settlement. Another category of this charge is the reorganization of the business. The company had to reorganize the business to cope up with the financial crisis.
Source: (Motorola, 2008)
Furthermore, it can be seen from the current liability figure that it has raised. This liability was the main cause of the global financial crisis. The countries, companies and individuals, had suffered from the repayment of debts along with interest rates. Motorola faced the same consequence in the crisis. The figure for the current liabilities was $144 million in 2007. This figure increased like everything else and grew to $261 million. Furthermore, the change in the plan can also be seen. The return on plan assets were $20 million in 2007 and in 2008, it went into a loss of $73 million.
It is evident from the discussion that the financial globalization led to a disruption in the economic processes and the financial institutions around the world. The company, Motorola's sales deviation suggests that the financial globalization had had a huge impact. The factors identified in the annual reports of Motorola suggested that the credit market had frozen. The impact of the credit crisis was also the reason behind this. This credit unavailability meant that the suppliers of Motorola were affected. Manufacturing the raw parts required finances. The finance was done through credit and when the financial market destabilized, all the institutions that worked on credit were frozen in their operations as well. These institutions, in this case, were suppliers, consumers and the company. The consumers' operations decline could be shown through the sales decline of Motorola; although this company sells medium priced products. If a company that sells high-cost products would have been chosen, the sales decline would have been greater. An example could be the Apple laptops. In this case, it is analysedthat the product's sales would not decrease because they were purchased through credit. The decline would be because of the saving rate that increased during the financial crisis.


Source: (Trading Economics, 2015)
 It can be seen from the above graph that the savings rate saw a sharp peak in between 2008 and 2009. The rate declined in between due to the savings being used in the consumption of necessities; then, increased again. The global financing also impacted the saving rates of the US economy.
The impact of the global financial crisis on other economies can be shown by the GDP graph extracted from a book:
 

Source: (Lin, Edvinsson, Chen, & Beding, 2013)
The economies of Asia suffered along with the rest of the world. The real GDP declined to considerable lengths.
 In the graph below, the inflation rates for the countries in East Asia can be seen.There was a sharp increase in inflation in 2008. However, the countries took appropriate measures to bring it down in 2009 to an extreme low.
 Source: (Lin, Edvinsson, Chen, & Beding, 2013)
 
The book mentions that China took several steps for this recovery. In 2008, several private companies closed down. Imports declined by 25.4% since other countries in the world did not want to invest their money in the global financial schemes. The debt had governments to increase their tax rates and limit their spending. The limit in spending caused getting fewer imports from China. Also, the increased taxes on export products had also decreased the exports. For China, the import form these countries had declined by 21.8%; this factor also applies to China. In the midst of the financial crisis, the Chinese government had also decided to limit the spending to cover the debt losses.
The steps that China took to recover from this shock were firstly increasing the spending and investment in public infrastructure development. Secondly, China loosened its monetary policy to encourage lending by banks to avoid closing down of further private companies. They also took various measures such as a decrease in the imports to encourage domestic consumption and get out of the globalization of debt concept (Lin, Edvinsson, Chen, & Beding, 2013). It was statedthat spending on the public sector would be quite necessary to avoid such situations. This policy had ensured that the economies remain stagnant. China experienced a smaller change or decline in GDP when compared to Hog Kong, Singapore, and Taiwan. This is because the public expenditure policy was halfway through its implementation. Further working on its implementation made China the least effected countries in Asia.

Propositions

The assessment of the company Motorola and the Chine economy, the propositions will be made for countries to avoid such a financial crisis from happening again. Although, with limited knowledge, it will be tried thatthe best propositions are presented and that the economic and financial concepts are in line with the propositions. It was stated, that China had implemented policies of an interest rate cut after the financial crisis. This shows that it did not want to work on a deficit and wanted to have a debt to equity ratio close to unity (Lin, Edvinsson, Chen, & Beding, 2013). For an economy to function in a way that does not pose a threat to a crisis, a model of inflation must be implemented. This model would be that the inflation rate matches the interest rates in the economy. This model would ensure that the purchasing power of the people remains the same, and the economy does not work on debt. If a person borrows money to invest in a business, they return the money back to the business with interest after making enough profit. But his profit is obtained from the loans other take to get the product manufactured by the business. They pay interest as well. This series continues and the people pay their interests for loans taken by others (Bishop, 2012).

The second proposition is to decline the interest rates in the economy. This decline could lead to a situation like the credit crisis. However, the implementation of the Chinese policy to give mortgage loans at a very low rate can be there to counter the threats of a credit crisis. The investment in the public departments would increase the government profits, and the tax rates would decline. This decline in the tax rates would mean that people have less expense. The inflation rates will go to zero with a fixed amount of money in the market. Right now, to pay interest rates, the central banks print more money thatincreases the supply of money in the economy. The basic economic principle of supply and demand suggests that the increase in supply leads to a decrease in price. This decrease in price or the value of money is the inflation.
The third, interrelated proposition is to pay all loans and interest rates on countries. This payment can be made by an increase in the real value of a country. Most economies pay interest rates and global borrowings by increasing tax rates and decreasing public spending. However, as can be seen by the Chinese example, they increased the spending on the public segments and encouraged the consumption of domestic produce to avoid importing on credit terms. The book stated that China had increased subsidies to companies to improve businesses. This business improve would lead to greater profits in the public sector reaping profits for the government enough to pay the global financial borrowings and interest.

Conclusion

The conference paper can be concluded with all the discussions and outcomes of the discussion. It was observed that the financial crisis had had a huge impact on many private firms. Many of the small firms had closed down resulting in an economic surge. The companies that did not file for bankruptcy, like Motorola, spend millions of dollars on their restructuring. This restructuring was done to gain the market position back. Motorola had faced losses in millions of dollars and still, it invested in restructuring activities; even though, it has been stated that the company was facing difficulty in obtaining credit because of banks being reluctant to give out loans. The same activity can be seen in China. An analysis of the Asian countries in the global financial crisis revealed that the global financing had given a lot of losses to companies as well as countries. After the financial crisis, China and other economies started retreating from the global finance concept. To do so, they invested instead of cutting down on costs. USA cut down costs of health benefits and increased taxes to pay the loans that it had gotten from the global financing. However, this weakened the government, and people resented the leaders on their decisions. USA also took the step of lowering the interest rates to a near zero. It wanted the decrease in interest rates to avoid printing more money to pay the interest to the investors. However, the situation caused banks to take more money as loans and invest it in leveraging activities. This had caused the credit crisis.

This thorough analysis brought the conference paper to some propositions based on the Chinese model. The propositions included the investment in public systems to increase government profits. It wanted to use the profits as a source of loan payment rather than taking more loans to pay off the existing loans. The model included the reduction of taxes in the economy to bring the inflation rates and the money supply to zero.
 

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