13 March, 2010
Did you ever have the questions like, How the recession happened? Why do we need control on money flow? What is the importance of economy? What is Marshal’s economy theory?
Observe the following simple example,
A, B and C are close friends, of which A is rich, and B, C are moderate investors. Let us assume A lends his money to B and C equally. Say, B and C acquired new land with some of the borrowed money and rest used for other activities, like material, workers, etc. Think that B and C out of money and there are no other investors to lend money for them. What will happen?
Now, fictitiously A is rich, B and C also rich (by virtue of investment value). Also, the workers might have improved their social status due to the value addition they did to the construction. Every one virtually improved their social status, yet there is no money! Huhh… stalemate! In the example A is banker, B and C are customers.
After some time, they won’t find money any where and may experience the state of recession. Once declared recession, every one tries to be defendant and it worsens the situation. The advancement in media adds even more non-sense. In such scenarios, the governments try for rotation of money using packages and other techniques (CRR)…
I believe this is the basic reason behind collapse of financial systems. Fortunately, the roots of our banking system are stronger and we could able to come out of it in less time. Still the situation in west is not encouraging. We have a renowned economist and the instrument of Late. PV Narasimharao as our PM, proud to be Indian.