The European Central Bank lending rate as a last resort is at a historic low, yet, this does not quite give confidence to the private banking industry as the collector of savings of the many and the distribution of lending to the few, making record profits each year. There seems to be enough liquidity to allow the industry to remain unchanged, and totally uncaring of the repercussions it has caused during the economic recessions. But who blames the bankers, except for policy makers as they clearly and contractually informed you of their terms and conditions in advance?
This might leave opportunities for other financiers to venture into what the traditional bankers deem to be risky, as start-up businesses look to venture and seed capital, in an economy where money supply tends to be scarce and distributed sparingly to ensure the maximization of profits through the careful adjustment of interest rates so that the banking industry continues to make record profits, through discriminatory pricing of interest rates.
Yet there has been a move towards ethical banking that does not undermine its economic necessity to make a profit, and, by observing headlines we can clearly understand that the business model is healthy in profits and advanced in customer service. At least I am always treated with a high level of politeness and complete and objective information when I talk to a professional working for one of my preferred bankers, so I cannot quite complain that information is not available as a consumer.
The question of whether and how money supply can increase for start-ups, is one that we analyze through the lens of Keynesian economics, although this does not quite tell us whether money is the solution to all of our economic, and, our life problems. Even though the adage goes "money is power", there are more joys of life that most people might ignore if they become too greedy and obsessed about reaching higher levels of monetary gains.
First of all, deregulation and liberalization of markets can bring about increased flexibility available to the business, assuming that the economy is a fair level playing field, and, there again we have a huge stumbling block, as we might know that "the big fish is big enough to swallow the smaller fish", and, therefore businesses with more financial resources and negotiating power are not too shy of making use of information and economic resources as a way to improve its negotiation and lobbying.
As a case study one can mention a software provider who had at the time asked me to engage as a reseller, had started off with this kind of unethical approach by attempting to impose his company's terms and conditions upon me, and I simply refused to accept some of the conditions since they were unfavorable and not in the interests of my own smaller business venture, which brings about the common wisdom that not accepting recommendations and proposals prima facea is an effective executive thinking philosophy, whether you are a self-employed entrepreneur or whether you represent Microsoft Corporation. Larger companies have the same kind of problems and difficulties of negotiation and competition that you face, it is just that they might have more resources available to them, which at times can be an issue that imposes a slower way by which their bureaucratic procedures can react to external factors (e.g. politics, economics, law, the environment, and, social factors influencing its relevant, legitimate and possibly authoritative stakeholders including shareholders, senior management of connected companies, customers, employees, sub-contractors - whether they supply core or support activities, and the general public. This alone leaves the manager with a very busy schedule typically consisting of a lot of communication and a lot of other daily duties tied to their management responsibilities. Since corporates are typically banking customers as few people would dare to leave their cash unguarded as this would make for an irresponsible administrative management system, then the issues that corporates face are seen to influence the economic and marketing strategies of the banking industry and other influencing entities influencing money supply, assuming its demand is one that most people would accumulate the maximum amount that can be availed of or saved on their personal account or budget, and, this principle is seen to apply even to larger firms.
Global activity has broadly strengthened and is expected to improve further in 2014–15, according to the April 2014 WEO, with much of the impetus for growth coming from advanced economies. Although downside risks have diminished overall, lower-than-expected inflation poses risks for advanced economies, there is increased financial volatility in emerging market economies, and increases in the cost of capital will likely dampen investment and weigh on growth. Source:IMF.
Keynes had argued that fluctuations of fixed investment (i.e. probably from the global private industry) influence the savings available to banks for them to lend, who after deducting regulatory margins for solvency and other reserves that are beyond the scope of this discussion, but can be further analyzed in line with standards of the banking industry. Moreover, it was argued that savings does not fall as much as interest rates do (hence the decrease in savings is inelastic) and to my mind, this is observed and from what I can perceive as a social analyst, happens due to the fact that people won't just run to the bank and withdraw all their money unless there is a major news of bankruptcy. In any case, regulation has reached an advanced stage in the developed countries and consumers are made to feel protected by European consumer protection directives, although case studies indicate that negotiation and arbitration are still necessary to make ends meet when litigating parties are involved. Regulatory bodies tend to make a number of possibly incorrect and speculative validations before validating cases and more often than not researchers have felt that their rights are not sufficiently covered and protected by the regulations, so there is room for improvement from the consumers' point of view, and, this would be expected to bring about further skepticism as people might tend to avoid lending, with a view that banks are unfriendly, money-making "pigs" in an economy that is still left with perceptions of pessimistic outlook, as the Maltese Chamber of Commerce seemed to convey recently in its reactions and pre-budget discussions with the executive leaders of the Government of Malta.
Keynes argued that income and substitution go in opposite direction, therefore "if I was a wealthy man" I might not necessarily make the same consumption purchases that I make than if I was a person living in poverty. Would I choose to buy an expensive car just because my name is Mitt Romney (for the sake of illustration)? If I were to engage in conspicuous consumption, would I still have a net worth of a few millions less, that I would not really bother about for the rest of my life?
Perhaps if my name was Ebeneezer Scrooge (or I was a Maltese business man as this seems to be typical in certain social circles), would I still hoard massive amounts of money in the bank - which brings back the argument in favor of savings as a "safe haven for the rainy day" which is a compelling argument for banks to attract deposits, whether they can be withdrawn upon demand or are held on a fixed deposit basis. Keynes argued that investment is based on long-term expectations, and, thus short-term needs for cash flow and revenue albeit being valid management principles and practices, are not the only factor that in theory would attract educated investors (or their educated investment managers) to a particular money market, not to mention that technology nowadays allows bank transfers to be carried out in matters of seconds, strictly from a technology point of view and if the market were not highly regulated to allow for verification to be carried out in the background that allow a legal transfer of funds between one account and another or between one country and another. Compliance, fraud and money laundering issues come to my mind through my experience of banking practice.
Keynes argued that savings and investment are not the main determinants of investment, especially in the short-term. For example, some traders buy and sell currency, and, allow customers to carry out such trade of currencies through deposits held with their trading platform, making profits from day to day fluctuations of exchange rates, money markets and stock prices, and, such traders seem to have made us go through pain and joy as we watched headlines of stock market crashes and economic recession. Secondly, investors do not simply invest because they want to earn a fixed interest rate, otherwise they would save their money in a bank which offers an interest rate in return for their money. Entrepreneurs aim to achieve their business objectives and reading the thoughts of investors, more often than not they are aware of the risk and take a plunge or a calculated risk in their venture. Generally, it is observed that banking employees are more risk adverse than business customers, at least from my own experience, as they protect different sides of the same coin.
Keynes argued that fear of capital losses might give rise to the tendency to short sell e.g. liquidate investments or fixed term deposits out of the stipulated contract period in times of crisis and fear. For example, if I have money saved up for a rainy day, and an emergency crops up that leads me to ask the bank manager to liquidate those funds, I would then have to negotiate with the bank and incur charges for the early withdrawal of such funds, as this has to be agreed again between myself and the legal representative of the bank.
It is also thought that digital (virtual) currencies might pose unregulated risks to the money supply within the banking industry and this is thought to influence the money available for lending (in aggregate) within the regulated and the unregulated economies.
Interest rates, alternatives between different forms of investment proposals and contemporary business practices all influence money markets and whether these are tightly or loosely regulated, a degree of regulation overhead still exists and might be a factor causing inertia that in itself inhibits the financing of business activities, which does not quite fall short of expectations of professional management of business operations, aiming to achieve not just profit, but social and ethical responsibilities, as these are the norm in today's professional marketing. Flexi Bundle
No comments:
Post a Comment