The recent LIBOR crisis that hit the headlines last week has shown that once again banks which were once reknowed for their prudence and considered boring have now been replaced by greed and reckless risk-taking. According to the WSJ, in the early years of banking an institution needed to attract deposits from the public and therefore cultivated prudence and integrity and publicised this to potential investors. Lets face it being boring was potentially a selling point for bankers. During the 20th century this changed and you only need to look no further than the pre-crisis advertising in which the rhetoric wasn’t one of care and honesty but a willingness to lend to anyone.
However in today’s environment do depositors care so much about the prudent and trustworthiness of banks? Do they actually benefit from this? When you have a situation that the banks become “too big to fail” and are bailed out by the government there seems to be nonchalant attitude amongst depositors to the integrity of banks. This then means that the banks have little incentive to care either. It seem that banks gain little advantage over their competitors from being prudent. In fact depositors can gain from the banks making risky uses of their money. As the government will guarantee their money they then can profit from higher rates of interest by the banks being prepared to make riskier investments. This has encouraged investors to favour risk-taking banks.
Found this poster on a guide to money on the xkcd site. It started as a project to understand taxes and government spending, and turned into a rather extensive research project. It goes through from Dollars – Thousands – Millions – Billions – Trillions. The 36″x24″ high-quality poster print allows you to stand back and, all at once, take in the entire world economy. Below is the part on Trillions. To order go to the store.
The Guardian newspaper recently produced a useful article about inflation. Although UK based it covers issues such as: stagflation; a historical look at inflation globally (see below); is high inflation good for anyone; why do governments target inflation. Click here for the article.
The record of the highest inflation globally was long held by Germany in the Weimar Republic years when money was carted around in wheelbarrows. In December 1923 prices were more than 85,000,000,000% higher than a year earlier and the highest denomination bank notes had a face value of more than 1,000,000,000,000 marks. In post-revolution Russia, inflation reached 60,804,000% that year – some economic historians believe the government deliberately stoked inflation to impoverish the better off.
But after the second world war, Hungary suffered the highest inflation ever recorded. In the peak month of July 1946, prices were doubling in little more than 12 hours. Other countries that have seen sky-high price rises include China during the civil war from 1945 to 1949, Greece in 1944, Argentina in the 1980s and war-ravaged Yugoslavia in 1994.
More recently, Zimbabwe made headlines for soaring inflation, with price rises hitting 66,212% in December 2007 – the highest inflation in the world at that time. The highest denomination bank note had a face value of 10,000,000 Zimbabwe dollars.
By contrast, Japan experienced a long period of deflation during the “lost decade” of the 1990s.