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The global banking crisis, economic recession and implications for the EU

in Economy and inflation,

There are many theories focused on explanations of financial crises. Different authors give their views on what caused the financial crisis globally, but the main view is that global relations are those, which define the scope of the crisis. Financial crises reveal a certain gap between financial and real sectors. This rift has three causes.

  • First, the increase in money supply as a result of increasing mutual reversibility of national currencies and the control of the central banks control, which is often too soft.
  • Second, the pressure increases due to the dramatic reduction in transaction costs, leading in turn to a contraction of space-time dimensions of financial markets and allowing the basis of most modern information and communication technologies to trade in all markets where it in real time. This process is further accelerated by financial innovation, which are the product of increased competition.
  • Third, weakening the effectiveness of control by supervising financial institutions. This is a consequence both of their limited abilities to realize their goals, and the shortage of foreign exchange reserves of central banks, limiting opportunities to counter speculative capital movements.

All this raises the question of the crisis is not only internationally, but also focused on the impact of the crisis on individual economies.

US Money Reserve data and market researchers point to several sets of reasons relating to the financial crisis like increasing opacity of financial markets, which is caused by the intensive application of a wide range of new financial products that increase the daily volume of forex transactions, this volume equal to the capital of a large U.S. bank only a few decades now equals of the total capital of the first hundred banks.

Another reason is the significant reduction in the resources of the International Monetary Fund, appearing in turn consequence of contraction of the States of OPEC, which in turn is associated with increased foreign exchange receipts of these countries and rising oil prices.From a structural point of view, international currency financial organizations dramatically reduced the volume of outstanding loans and gived $ 70 billion in 2003 to about 20 billion in July 2006 to tend to the International Monetary Fund has fewer resources to combat against the occurrence of financial crises and their distribution.
The last reason is the significant U.S. trade deficit. The latter is a reflection not only of the commercial assets of China, but also that of India and other countries in Southeast Asia, assets arising from the explosion of growth in these countries and in particular the growth of high-tech and high rate of value added exports to the U.S.. Therefore: dependence on the U.S. economy from external partners and diminishing resources of international Monetary Fund, determine the growth of this global crisis.

 
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The loan’s nature

in Credit cards, Economy and inflation,

Credit relations appear with the occurrence of commodity production. Even before the money appearing as universal equivalent, when the exchange and the presence of trust between entities appear first credit transactions. The main feature of the loan is breaking in time from the alienation of the object of the transaction to repay liability incurred. For the period of deferment in time value passed in temporary possession of other hands and returns to the creditor within a specified period.
The most common “credit is the ability to receive goods or services in exchange for a promise to pay later or opportunity to receive money against pledge obligation to be paid later. ” To have a credit deal are necessary two members- creditor and borrower. Between their interests must have matched –  the creditor, loaning money and the borrower, requiring additional funds. They must be independent legal entities, and agree on the conditions guaranteeing the loan. Between creditors and borrowers must create economic relations, which have a material basis.

Forms in which occurs the loan are: 

  • 1. Commodity credit. It appears as: commercial and consumer.Commercial loan is the first historical form of the loan, which exists to nowadays. It is applied between the participants who maintain direct relationships with each other.Consumer credit is that which shall be provided by banks and merchants to the end users, and to satisfy consumer needs.
  • 2. Bank credit. It occurs later than merchandise credit. During the late Middle Ages, when banks appear as intermediaries of a credit relations with, and have a high level of development of money form of value, bank credit becomes the main form of credit relations. Banks became a creditor because they accumulate large cash capital.
  • 3. State credit .This type of loan is also provided in monetary form. Subjects in the credit transaction are: the state in the face of Ministry of Finance or the municipalities, which could be both creditors and debtors, legal and physical who may also be creditors or debtors. Major creditor of the state banks are public or private, in this including banks, IMF, World Bank, European Bank for Reconstruction and Development and more.
  • 4. Emission credits. This is a loan that shall be provided by the Central Bank through the issue, ie printing and release circulation of money. The issue of money increases the liability balance sheet liabilities of the Central Bank, as well as liabilities of the commercial banks, by way of increased borrowings in them. Through this credit increases credit resources in the economy. CB can lend at the expense of their own funds – primary and backup. Then We have a loan of the capital, which is directed at improving the production structure of the economy.
  • 5. Bond credit. Giving bond loans are made through the issuance of bonds of specific instruments in the financial market. Bonds are subject of sale on the secondary market, where owners selling them and receive cash requirements. This makes liquid bonds and demanded as a form of store of value and as a form of credit. The bond loan will be considered more advantageous than bank credit.
  • 6. International credit. It shall be provided both, in stock and in cash. Counter parties to credit are the State,banks, businesses and individuals. International credits carry overflow of capital from one national economy to another.

 

 

 

 

 

See: moody credit ratings

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The credit economy

in Economy and inflation,

Modern economy, based on market principles, largely is a credit economy. Nowadays is impossible the development of any business activity without the participation of the loan. To place a credit deal is necessary to have two member creditor and borrower. Between their interests must have a coincidence, the creditor has a borrowed funds and the borrower, require additional funds. they  must be independent juridical operators who agree with the terms guaranteeing the loan. The loan is a separate economic category, reflecting the objective existence and expression of a specific economic phenomenon with a particular place and role in the market economy.The basis of its essence is the movement of credit value and related loan relationships, and grown as the basis of their specific banking – credit setting. The appearance of credit can be defined as the next most important event for the society after the appearance of money. By credit is achieved shortening the period witch  meet the needs of businesses and households.The credit appears in the exchange, where there is an equivalent exchange of goods in which they changed his owners. Therefore the turnover of capital is the objective basis for loan economic development and credit relations.The turnover of capital is characterized by continuity. In the process of movement of capital fluctuates the sources and amount of resources to new resources. During the movement of capital is carried temporary release of free resources. For example buildings, machines and equipment used in production for a long period,but transfer parts of its value on production.Accumulated in the sinking fund resources can be targeted to those companies by loans,  where they need them. Such is the picture and at the movement of working capital. Where the turnover fluctuations are even larger.Credit is a firm part of commodity production. The reason for obtaining loan, is not because the borrower are poor, but because under the above objective circumstances turnover of capital appears temporary shortage of own funds. Society can not afford immobilization of free resources, just to be accumulate in large quantities needed for the investment process.

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Debit Cards – one easy way to paying bills

in Debit cards,

The most common card product in Europe, which is issued in our country are national (local) debit cards that bear the logo of the national card operator like Borica. Issuers of such cards are all banks that possess a banking license for issuance and management of bank cards. National debit cards are accepted by all ATMs and POS terminals linked to the authorization system of Borica.  Every transaction carried out with such a card requires the introduction of the secret code associated with the card, called a Personal Identification Number (PIN).  The introduction of the secret PIN code is required for transactions that take place at ATMs and for payments to be made at POS terminals.


With a national debit card the cardholder can perform the following operations:

  • - draw cash through ATMs (cash dispensers)
  • - pay for goods and services and draw cash through POS terminals
  • - pay for goods and services on the Internet
  • - perform transfers between accounts via ATMs
  • - pay for services through ATMs
  • - to perform reference and other payment and non-payment operations

Before starting to operate with his/her debit card, the customer must first order it. The banks issuing debit cards sometimes offer debit cards free of charge if the client makes a deposit with the bank. Upon issuing a debit card, the bank opens an account, where amounts are received.
Interest rates of the amounts usually are lower than those of the deposit.  Debit cards usually have certain validity, which can be extended after expiry. Typically, debit cards are associated with the possibility, once amounts are being transferred, those amounts to be withdrawn in cash.  It should not however be considered that the use of debit cards is limited to withdrawing cash.  The debit card allows the cardholder to perform payments for goods and services.
The debit card allows the cardholder to pay for goods in shops via so-called  POS-terminals.  Those established facilities allow the cardholder to perform payments without carrying around cash. Certain debit cards have a feature  that separates them from other debit cards and brings them closer in functionality to credit cards. This is the possibility to be used in the home country and abroad.  There are debit cards that are issued in Bulgaria and can be used for payments abroad.  These cards are known as cards of a “higher” class.  Such debit cards are Visa Electron and MasterCard.  They not only allow their users to withdraw cash from ATMs abroad, but also to perform payments over the Internet. As an e-card, the debit card also allows payments over the Internet.  It must be specified that to do so it is necessary the debit card to be of the aforementioned “higher” class.  Of course, this does not mean that ordinary debit cards cannot be used for such a purpose.  They can perform payments to all Internet sites that accept them. Such card is the Maestro debit card.

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The American Express international card

in Credit cards,

The American Express international dollar card offers its clients the opportunity to use it in any country, and perform payments in local currency.  The monthly limit is the amount of the guarantee deposit, which is accrued by an interest rate determined at the purchase of a monthly deposit. Initially, the banks imposed credit cards with a minimum balance.  When using these cards the bank blocked a certain amount in the account.
Thus, the cardholder does not use credit, and is neither allowed to have the full amount on his account.  By blocking the minimum balance banks are insured as it is possible to perform payments of small amounts abroad, without even checking the balance of the credit card.  The minimum balance ensures that even if the customer spends money which he/she does not have, the banks will be able to recover the money from the blocked amount.

 

Valid American Express card signs

When the card has a minimum balance it apparently entirely loses its credit function.  However, such cards are being issued, as they can perform payments which cannot be performed with a debit card – transactions on the Internet, hotel reservations, car rental, payments for plane tickets, etc. The second step was for banks to offer their clients a card with no minimum balance, but a secured one through deposit.  It is difficult to talk about real credit outstanding features with this card as the amount of the credit used is smaller than or equal to the amount of the deposit.  In the early years of credit cards issuance it was difficult to find a bank offering a credit card with a credit which is bigger than 70% of the deposit amount.  Thus, the banks were rather cautious with customers and what they offered as credit cards was quite different from the traditional idea of the same product in developed countries.  We should also add here the ability to make payments on the Internet, although Internet transactions in Bulgaria are possible through debit cards by using the system ePay.bg. In recent years we have experienced a boom in consumer lending, which further raised the interest in credit cards.  Banks pay much more attention to consumer lending. The requirements for obtaining credit decreased, the list of necessary documents for applying was drastically reduced, the number of guarantors required decreased, the maximum loan amount increased, interest rates became quite acceptable.
Under these circumstances, credit cards have found their place in the growth of consumer credit.  The banks started issuing “real” credit cards, i.e.  cards with real credit limit with no minimum balance and deposit.  Banks started to offer charge cards, where the customer has a certain grace period within which he/she can enjoy an interest-free loan. Banks also started issuing grant and revolving cards which do not require full repayment of the debt and the latter can be repaid by installments, whereas the cardholder pays only the minimum monthly payment, which with different banks amounts to 5 – 10% of the authorized credit.

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