In economics, the three main factors, what to be produced, how to be produced and for whom to be produced, should be deeply researched and studied before starting anything produce, otherwise problem may be arisen any time in economy. In USA until 2007 beginning, housing companies had got huge profit by building houses, most of financial institutions had invested huge investment to housing company. Seeing good return from housing companies, many investors attracted to invest in this field and financial companies also increased their investment to housing companies. That’s why they made large number of houses than actual demand of houses, then they could not sale their houses in market. After that they were unable to pay bank loan. Due to block money in housing company, bank could not invest their money in other businesses and also could not return to their customers saving money as well. After that problems were sparked in every business, many people were being jobless, many companies and banks were collapsed in USA. Share market had been totally plummeted. After collapsing USA market, these problems had been sparked across the world. The world suffered from a great recession in 2007/8, after 1929 depression.
If we consciously study that situation, we can find out that movement of money was stopped due to build of undemand houses. So, in this situation central bank of country should pump up for money movement otherwise impossible to overcome from recession. That time central bank and government had taken so many steps for increasing money movement. Government announced tax exempted, interest was almost freed near to zero percentage, so many stimulus packages were given to businesses, bailout programmes were conducted. Central bank had bought those houses which were not sold. After taking so many steps by government and central bank then all economy activities had slowly started in right direction. To take these actions government and central bank also didn’t have extra and reserve money in their account but how they were able to do. It is simply that central bank printed new money and used for stimulus, bailout and others necessary actions to run economy activities. In normal situation, if central bank prints extra money without deposited back up foreign currency and gold, it creates inflation, but in crisis situation, must be printed extra money to give businesses to run again even central bank doesn’t have deposit money. In crisis situation, extra money uses for increasing movement of money that extra money doesn’t play role to increase extra demand of products. So that it is very low chance to be happened inflation in economy. For example, if central bank gives free money to businesses, those businesses should pay their staff salary, rent, tax, and bank loan, they cannot create extra demand of others products than normal situation.
By understanding this situation, central banks of USA, and Europe have been applied these steps in 1929, 2008 and current time as well to overcome from economy problems in crisis situation. But I am unanswered yet that why Nepal government and central bank don’t take same actions in crisis situation. If somebody knows about it please write in comments. Thank you for reading. My next article will come, about economy impact, if fixed exchange rate is closed between Nepal and India.
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