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3 Basic Steps to Understanding the World Economy

ECONOMY 3 Basic Steps to Understanding the World Economy

The world economy is changing and since 2008 it is safe to say that change will be eternal. We can never get into the situation we were in then and with new restructuring measures, banks certainly won’t have the same freedom they once had. The world has become much more regulatory in nature and that has impacted on the economy in no uncertain terms.

There is such a focus on moderation and limitation of the power of banks and while I believe that to be necessary I don’t think they should be restricted too much.

Think back, before the crash there was always a period of prosperity and I’m sure a lot of people would be willing to take a little risk for a potentially prosperous future.

Removing all the risk from the banking sector removes the chance of these welcomed economic booms, but that isn’t for me to say.

3 Basic Steps essential to understanding how the world economy works

Re-Lending

This is the cycle that keeps the economy and lending afloat. When you deposit money into a bank, it doesn’t actually stay in the bank, only 1/5 of it does, the rest is lent out to other people in what’s known as the re-lending cycle. There are many reasons why this is but the simplest reason is that it keeps the economy growing, the more money banks lend out, the more likely we are to see growth in the economy as more people are spending and investing etc.

You may all think, where is my money going and what if I want to withdraw it all? Well it’s simple, if you want to empty your account, you can quite simply but the money will come from elsewhere.

There is an element of trust involved in banks and the fundamental reason is because you don’t expect people to close their accounts. The rare case in which this happened was with Northern Rock and the result of that, as we all know was pretty horrific.

Investment

People need to invest to keep the economy moving. Companies like Thebe investment corporation provide clients with investment advice to both ensure the economy keeps moving forward and personal wealth is maintained and enhanced.

The whole banking industry has been in disrepute since 2008 but due to restructuring things are changing and regulatory measures are ensuring banks don’t have too much power.

Investment can be both lucrative and enjoyable, there are so many simple ways to move forward in the investment work, you just have to be a risk taker and keep up to date with current affairs and developments.

Interest Rates

The interest rate is set by a central bank and that is what keeps banks afloat, the interest we pay on the service they provide keeps them going and keeps them lending.

It is a very intricate and well-designed industry that really does work, providing greed is removed and objectivity is applied to the decision making process.

 

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