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Crashing Economies - Coggle Diagram
Crashing Economies
Use politics to keep people happy
Distracts people with seemingly good plans
Ex: Stimuli
Focused on short term
Goal: reelection
Often leads to more borrowing or more inflation
This can lead to corruption within the government
Ex: Max Goodbank "disappearance"
People do not want to give up life of luxury to aid the countries currency
Borrow too much
Due to having empty reserves
Use foreign nations to finance country
Is much easier to do when the borrowing country controls the world's official reserve currency
Interest rates begin to take their toll
Rely on countries willing to lend
If non are, default or hyperinflation is the consequence
Inflate the currency
Due to having empty reserves
Makes currency less valuable
People must pay more to get less
Adding money to the supply
Too much of this is know as hyperinflation
Can lead to recession
Intensity determined by the distance from equilibrium
Policy and borrowing can intervene, but only push the problem off until later, usually making it worse down the road
Ex: The "hut rut" or the housing market crash of 2008
Government may step in to bail out those it deems valuable
This can lead to more borrowing