Research On Break Out And Guard Against Financial Crisis

Ever since the Great Depression During 1929-1933, the worldeconomy has been in a relatively stable state for half a century. But after 1990's,financial crises broke out one after another, the financial crises frequency increases obviously. According to Krugman's research, the financial crisis is about to take place every two years. These crises usually were touched off by the attack of international hot money and broke out first as currency crisis, having the inside sources, latency,rapid and extensive chain reaction and contagiousness as their features. Their breaking out imposes great damage on a country and even the whole world economy. Although our country avoided the contagion of the Asia crisis by relatively strict capital regulation, our country has become a member of WTO, and the gradual release of the regulation on capital and financial account is an inevitable trend. Our country's economy will increasingly and extensively melt into the progress of the integration of the world economy. These make our country's economy face not only more opportunities, but more attacks and ordeals. Therefore, there are in-depth and realistic meanings to study the breaking out and contagious mechanism of financial crises. This kind of study is particularly urgent against the background that there are a lot of bad loans in the banking system and that the whole financial system is rather vulnerable. In view of this, taking the analytic method with reference to the achievements of the research on the breaking out and contagious mechanism of financial crises, this paper, studies our county's financial system, the capital flow, the foreign exchange regime, real estate bubbles and the investment efficiency etc. and then points out the factors that will induce our country's financial crisis. Then this paper tries to put forward policies against the financial crisis.The main body of this essay consists of three parts:Part I gives a full description of the breaking out and contagious mechanism of financial crises. As for bank crises, Marx, Marshell and Keynes ect. explained the: breaking out mechanism of the crisis mainly from the angle economic cycle. Diamond, Friedman, Stiglitz and Reinhart etc. analyzed the causes of the bank crisis respectively from the intrinsic flaws of the and financial liberation etc. As for currency crises, western scholars have put forward three generation crisis models. These three generation models research the formation mechanism of currency crisis respectively from the angle of thedeterioration of a country's economic fundamentals, the intrinsic fault of the fixed exchange rates, the instability of expectations and the financial operation system. As to the crises contagion, Gerlach, Miller and IMF respectively studied the trade contagion, the financial contagion and the expectation contagion.Part 2 elaborates on hidden dangers that probably set off the financial crisis in our country. This, first of all, displays on the relatively vulnerable banking system. There are a lot of bad loans in our country's bank department and the required capital rate and the profit level are too low. There are bubbles and over speculation problems in the stock market. Moreover, the structure of the financial system is unduly unitary, and so on. All these factors make the financial system rather vulnerable. Secondly, the exchange rate is too rigid. This greatly affects the independence of our country's monetary policy and its effective implementation. It frequently conceals serious currency crises. Thirdly, the unusual capital flow under the regulation on the capital account and the accumulation of huge nonperforming assets resulting large bubble and the inefficiency of investment also become the hidden danger of financial crisis eruption.Part 3 is on the policies that will prevent the financial crisis from breaking out and ease the destructive effects of financial crisis. Generally speaking, the breaking out of financial crisis almost all has its domestic inducements. If we want to avoid the breaking out of financial crisis, we should start with reforming domestic economic system. So we should accelerate the reform on the state-owned commercial banks, transform their operation system and establish modem commercial banking system. At the same time we should strengthen the prudent supervision on the bank department. Besides we should vigorously develop and improve the capital market, release the regulation on the capital account, reform the present exchange and foreign debt administration system and establish prudent early warning system for the financial crisis. Furthermore, as the degree of the international financial integration is increasingly deepening, it is impossible to deal with financial crisis only by one country's efforts. So we should positively promote the reform on the international monetary system and the cooperation among countries in the monetary and financial area.