S1E11 YAP Cast: Why do Financial Crises Happen?

Why Do Financial Crisis Happen?

Bitcoin, which was created in 2008 and is now considered digital gold, is a move toward hard currency, but where does it sit following the 2008 and 2009 crises?

In our latest episode on YAP Cast, we’re joined by Felix Martin, the author of ‘Money: The Unauthorised Biography’ where we talk about why financial crises happen.

A Pandemic Crisis?

Financially and economically speaking, what is a crisis? And how do we know when one’s coming, when we’re in one, and when we’re out of one? How come no one seems to see them coming until we’re in one, who’s to blame for them, and who’s responsible for fixing them? These, it appears, are hard questions to answer, but when these financial crises occur, we give them names. The Asian Financial Crisis, the Wall Street Crash, or the Great Depression. Some even become Broadway shows like the Lehman Trilogy.

But what about COVID-19. Is the pandemic a financial, economic, or market crisis? According to Carmen Reinhardt, author of “This Time Is Different” and chief economist of the World Bank, this is what’s known as ‘the quiet financial crisis’. While there may be politics, death, and chaos, bankers are still wearing their suits (at least the top half) for their Zoom calls. However, Reinhardt goes on to note that “a quieter crisis is gaining momentum in the financial sector. Even without a ‘Lehman’ moment, it could jeopardize prospects for economic recovery for years to come.”

Could DeFi and crypto reduce the sequence of crises or are we just replacing one vicious cycle for another?

Excising Money in Economics

Felix Martin, who initially studied classics before becoming fascinated with economics to become one, said that if you ask people what the study of economics is about, one of the first things they’ll say is that it’s about money and business. However, what Martin found during his studying of economics is that it had very little to do with money, banking, or finance. He explained that the whole concept of money had, in some sense, been excised from economics.

Martin, who then went to work in financial markets, saw a major problem. The fact that economics, which is meant to be the discipline that central bankers are trained, doesn’t have a focus on money and banking and people aren’t learning about it anymore. During Martin’s doctoral studies at Oxford in the early 2000s, he explained that he was in the last year of the course that was offered in money and banking. The biggest irony of this, however, was that this happened before the biggest financial crisis in history.

Bitcoin’s Place After 2008

Where does Bitcoin sit moving forward after the 2008 and 2009 financial crises? For many, it’s a fascinating technology, but for others, questions are raised as to whether it’s a flash in the pan. For something that has been around for as long as it has, there’s obviously something to it, according to Felix. But what is there to it? There are more aspects to it, other than Bitcoin, but with crypto in general.

All of this is a manifestation of people saying that they’re not happy that the core tool we use in our lives is managed by the government. However, instead of trying to convince the government to run things differently, people are now deciding to create something new. And it’s thanks to the technology that is enabling this to happen.

We hope you enjoy the Story of Money by YAP Cast.

The eleventh episode launched here.

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For more details, check out the YAP Cast website here.

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