The Ascent of money
The ascent of money is about the history of finance in the world. It revolves around warfare, diplomatic issues, and globalization. The Ascent of money is packaged in a Television documentary. The documentary starts with Professor Ferguson narrating the different names that are used to refer to money. The professor states that finance is the core of human evolution. Many aspects of human life are related to the financial system of the world. The documentary explains that the financial market is a true reflection of human behavior.
According to the Professor Fergusson, money increases the likelihood of human action or reaction to some issues (Fergusson 27). The history of finance goes hand in hand with the emergence of money. Professor Ferguson takes his audience through the evolution of money. In ancient America, people participated in barter trade as means of exchange. Bartering turned out to be a problem as some traders got a bad deal when exchanging their products. Barter trade needed the farmers to be in a trading coincident. A farmer dealing in vegetables coincidentally exchanged them with other traders dealing in grains.
There need to come up with a standardized medium of exchange that would be satisfactory to all traders. The use of coinage was later established to be used as a medium of exchange. Bronze and silver were the first metals to be used in money coinage. A huge number of slaves were used to mine the silver and bronze that was used in manufacturing the money. The silver was mainly transported by soldiers from one empire to the next. After the discovery of touchstone, it became easy to identify and measure the value of money.
Great improvements came by as the touchstone easily determined the metal content in the coin. The metal coins carried their financial value in them. The existence of gold silver and bronze in the financial markets brought about confusion. Traders valued gold coins than the silver coins. Asians got into the trading scene and made a good impression of the prevailing trading situation. The Asians preferred the use of silver in trading rather than gold. The use of paper money was introduced immediately afterwards. Paper money was introduced as a receipt for the storage of precious metals such gold in financial institutions. This idea evolved into paper currency that has since been used the world over for business transactions. The traders wanted to reduce the bulk that would be caused by carrying large volumes of metals when travelling.
The merchants usually move from one business sector to the next. Paper money has been used with the coins presenting different values (Fergusson 37). Paper money is valued more than coins. The professor states that money runs many aspects in human lives. In view of the recent economic slowdown and recession, Professor Fergusson refers to the situation as the dissent of money.
Humans tend to be in a celebratory mode when the economy is going on well. There is a sense of widespread depression during the times that there is an economic slump. The financial state of the world resonates concurrently with human feeling. Economic gains and slumps are because of human feeling. This activity is unpredictable as it affects human life and every aspect of it.
There is a need to understand the history of finance and the factors that drive financial systems in the world. In the recent past, most governments have been forced to step in to rescue most financial institutions that made wrong moves in making financial decisions. This is due to the dynamic nature of the World economy that has brought about great changes in the financial markets (Fergusson 66). Private firms and financial institutions such as banks have had to work with state policies as a result of getting state help. This would lead to more strict rules than before and increase in operation rates.
The market works with greater regulation than before especially when dealing with securities and stock exchange. There is an increase in credit Boom orchestrated by Asian intervention in the savings financial sector. Many scholars have been against regulation of the financial markets. Over the recent past, some flaws in the financial system have been linked to the strict measures and attempts to regulate the financial system. Americans waited until the depression became a crisis to rescue their financial institutions.
European nations followed suit after much debate. Ferguson attributes this to the concept of floating currencies. This led to a rise in the trade deficit that amounted to a financial crisis. There was an attempt to stop the financial crisis that foreseen in 1971. Richard Nixon opted to suspend the conversion of the United States dollar and gold.
Financial policies created by Bretton Woods came to end because of the decisive action. Bretton’s system required the use of fixed exchange rates that reduced the flow of capital from one country to the next. This meant that it would be very difficult to invest money overseas. There has been a significant reduction in economic activity across the nation.
This reduction lasted for few months in the summer of 2007 that caused a major crisis in the World. The affected sectors were the banking industry and the job industry. There were significant job cuts that led to widespread panic across the Nation as many firms were forced to cut on their expenses. The economic recession was brought about by several factors. Inflation was the main reason the economy went into a recession. The prices of essential goods and services significantly rose up for a long time. Inflation is brought about some reasons that include the following: The increase in national debt enhanced the rate of inflation in different economic sectors.
The cost of production is high; manufacturers are forced to raise their prices to make up for the loss they incurred. Higher energy is brought about by the increase in the prices of crude oil. Many businesses stopped to expand because of the reduced capital base. Many people decided to cut their expenditure on leisure products. This move significantly helped in reducing production costs in companies and manufacturing firms.
The GDP reduced significantly as the number of the unemployed continued to rise. Many workers were laid off to enable the companies support their operations across the country. The economy’s failure to remain stable during the slowdown is a strong indicator of financial blunders. Financial institutions were also hit hard by the economic slowdown. Some banks needed a bailout to be able to get back to business (Fergusson 87). The government came to the rescue of the financial institutions and gained some control in their operations.
Professor Fergusson states that the economic bailout helped the financial institutions build their forms. This was a tough decision to make, but it was a better alternative to bankruptcy of the financial sector. The recent bailout situation is not new in the financial world. There have been successive bailouts of economies from as early as 1990s. The recent bailout appears to be the biggest and widespread across American and European economies.
It is essential to address the possibility of differentiating the countries that were bailed out and those that were not lucky. This is possible by accessing the records of the nations that emerged from the economic slowdown. Some countries differ in terms of government policy and political arrangements. Politically stable countries tend have institutions that act as lenders for their companies. The economic slowdown caused financial crises that made the financial sectors to panic.
The financial crises are such as bad bank debts that brought about the need of a loan for rescue purposes. Some banks collapsed because of the financial panics. This was brought about by failure by some of the banks to service loans from foreign lenders to help them in time. Governments rescue financial institutions to an in turn have a stake in their operations. Many currencies were not left out in the financial crisis.
Many currencies lost their values against major currencies during the financial crisis. This occurrence turns out to be a threat to the economies of many nations. Financial panics are easily resolved by lenders of last resort (Fergusson 89). These are local institutions acting as the financial custodians of many countries. Many emerging markets have been subjected to the financial crisis. These crises occur when the prices of property and other assets drops.
Financial crises are supposed to be resolved by government institutions. There are instances where the crises take longer than expected. Sometimes the central bank is expected to play a role in rescuing an institution by providing liquidity. Some financial crises are caused by strains faced by local currency and the local banking system. These strains are referred to as external and internal drains.
When a bank panics and falls in its operations the situation can be referred to as an internal drain. These drains would happen in such a way that the banks are unable to liquidate their deposits (Fergusson 89). When a currency of a country faces a crisis, this situation becomes an external drain. People holding their currencies in such situations tend to convert them into foreign currencies or gold. Fergusson states that the people savings are insured by the government in case there are eventualities.
The property market has witnessed its fair share of price rise and slumps. Property developers saw an opportunity in using depositor’s money to build new home units for investors. They used the savings as the basis to take as many loans as they wanted. The idea faced a downfall and millions of client’s money was lost.
In conclusion, the financial situation in America has seen crises and panic brought about by economic the slowdown. The property market has not been left behind as mortgage borrowers have lost millions of savings because of the crises. Some of the crises in the property markets were caused by defaulting by mortgage borrowers because of high interest rates.
Work Cited
Ferguson, Niall. The Ascent of Money: A Financial History of the World. New York: Penguin Books, 2009. Print.
