1.2. Unsustainability of the monetary monopoly
1.2.3. Systemic crises
Let us begin with a look at the terms banking crisis, sovereign debt crisis and monetary crisis, and the phenomena that go with them.
A banking crisis is produced when a number of banks in one country simultaneously go bust, requiring the authorities to significantly intervene and either nationalize or rescue the banks at the taxpayer’s expense. According to the International Monetary Fund, in a banking crisis, the country’s business and financial sectors experience a large number of non-payments as a result of serious difficulties in the timely reimbursement of acquired agreements. Defaults then increase abruptly and the greater part of the global banking system’s capital is depleted. This situation can be accompanied by a depression in asset prices (shares and real property), strong increases in real interest rates, and a slowing of capital flows.
A sovereign debt crisis is produced when the financial markets estimate that a country or group of countries may be unable to meet the obligations of their national debt. Current European legislation dictates that governments must raise the money they need, either by raising taxes or getting further into debt with the banking system. Ultimately, a sovereign debt is endorsed only by a belief in the ability of the government in question to tax its citizens sufficiently to service this debt.
A currency crisis takes place when a nation’s currency suddenly suffers a substantial drop in value in relation to other currencies.
The umbrella term financial crisis is used to refer to a sovereign debt crisis, a currency crisis or a banking crisis, or any combination of the three.
The financial crises suffered by humanity are not the result of cyclical weakness or faulty management, but rather of structural weakness. Part of the evidence for this statement is that there have already been more than ninety-six important financial crises in the last twenty years, and that these events have occurred under different regulatory systems and different stages of economic development. We should therefore stop using the term financial crisis and refer instead to structurally-motivated “systemic crises”. In this type of crisis, the organizations involved – state, banks, central banks and the International Monetary Fund itself – have not only failed to anticipate or address the consequences, they have also failed to consider alternatives to the systemic status quo. Their solution has invariably been to return to normality at the earliest opportunity, without making any significant change to the structure of the system itself. Better solutions are needed, since the conventional solutions – nationalization of problem assets or nationalization of banks – are only treating the symptoms and not the structural causes of the crises. The kind of financial regulation currently on the political agenda will at best reduce the frequency of these types of crisis, but will not prevent their recurrence.