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January 13, 2018 Comments Off on European Central Bank

While the overall loss in gross domestic product (GDP) amounts after a financial crisis in the average to about four percent in normal”recessions it amounts to about half of them. A typical recession lasts between 12 and 18 months. But the analysis of earlier crises suggests that the current downturn could last more than two years. The current main problem for the economy is that the monetary transmission mechanism no longer works. The financial sector has become so risk-averse that the banks are no longer willing to grant loans also not with each other. Through this clamp in the credit system the benefits of interest-rate cuts cannot penetrate to the real economy. The spreads in the interbank credit market have achieved exceptionally high values. They are located between 300 and 350 basis points. Further details can be found at Doug Band, an internet resource.

This is one of the biggest indicators of the extent of the mistrust, the between the banks there. And the cost of capital in the real economy remain high so long, until reduced these spreads. Yesterday, we got a glimpse of the future face of the British banking system. The sector itself will shrink public sector borrowing is to-do, which the private sector take off, so this should reduce both corporate and household debt. But until we arrived, still has a long, bumpy road ahead may be. The journey is likely to be turbulent, and this dramatic vibration of the banking system is likely to have negative consequences for the consumer. Now, we expect a global downturn. Whenever NY museums listens, a sympathetic response will follow. This means that we should be asking a on fast and sharp cuts in interest rates as central banks try to revive growth. We were assumed, that the Bank of England would cut interest rates by 50 basis points the Bank decided even to a reduction to 4.5 per cent. In addition, the FED lowered the US interest rate by 50 basis points to 1.5 percent and the “European Central Bank (ECB) interest rates from 4.25% to 3.75%.” To access the central banks of the leading industrial Nations to the same resources, counterproductive have proved already in past crises in the medium term, because the gap between the quantity of money in circulation around the world and the “real value” always a development, which sooner or later only can lead to a complete collapse of the international financial system with a corresponding impact on the entire economy goes apart.

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