Topic 44. Financial market: structure, functions, participants

Financial market - an organized or informal system of trading in financial instruments. In this market, money is exchanged, credit is granted, and capital is mobilized. The main role in the financial market is played by financial institutions that direct cash flows from owners to borrowers. The goods are money and securities. The financial market is designed to establish direct contacts between buyers and sellers of financial resources.

Types of financial market: currency, gold and capitals.

On the monetary foreign exchange transactions take place in the market. The basis of this market are banks and other credit institutions.

On the gold market cash, wholesale and other transactions with gold are made, including with standard gold bars. The bulk of transactions with physical gold is carried out between banks and specialized firms; futures and options trading in gold is concentrated on derivatives exchanges.

In the market capital long-term capital and debt obligations are accumulated and circulated. It is the main type of financial market in a market economy, with the help of which companies seek sources of financing for their activities. The capital market is divided into:

1) securities market (primary, secondary, exchange and over-the-counter) and 2) loan capital market. Primary market of securities - this is the market that serves the issue and primary placement of securities. The secondary market is a market where previously issued securities are purchased and sold. The existence of a secondary market itself stimulates the activity of the primary market. By organizational form: exchange market (stock or currency exchange) and over-the-counter market. The stock market is a securities market operated by stock exchanges. The procedure for participation in trading for issuers, investors and intermediaries is determined by the exchanges. The over-the-counter market is the sphere of circulation of securities that are not admitted to quotation on stock exchanges.

The organizational structures of the financial market include various financial institutions: financial and banking institutions, insurance companies, etc., but the key among them are stock exchanges, the constant functioning of which has a significant impact on the sphere of financial and credit relations. Although the stock exchanges are significantly inferior in terms of the volume of transactions to the over-the-counter turnover of securities, they nevertheless play a huge role in the redistribution of financial resources and their efficient use.

Meaning of financial market:

1) invest money in production, which allows you to increase the country’s production capacity and accumulate resource potential;

2) with the help of the financial market, the development of enterprises and industries that provide maximum profit to investors is facilitated;

3) the flow of capital carried out in financial markets contributes to the acceleration of scientific and technical progress and the rapid implementation of scientific and technical achievements;

4) the financial market makes it possible to cover the budget deficit in a civilized way, because it is in the financial market that free funds are found to cover growing government spending.

Exchange Rates and Solving Economic Problems

The acceleration of the growth of the ruble against the US dollar is predicted by the world's leading investment banks. According to the conclusions of analysts, the real exchange rate of the ruble against the dollar: 1 dollar = 10-15 rubles. At the same time, they believe that the ruble will grow less rapidly against the euro.

The result of the strengthening of the ruble will be a significant slowdown in the Russian economy inflation.

Currency market analysts were talking about the fact that the dollar will have to fall very strongly this year.

The ruble will inevitably strengthen.

The same familiar factors continued to influence the mood of financiers: weak US economic data, a growing US foreign trade deficit, a decrease in foreign capital inflows into the United States, and much more.

A tradition of deceit, manipulation and deceit, and creative problem-solving, has been a feature of American life since the early days of the British colonies: the first known swindler in American history was Captain Samuel Argall, appointed Lieutenant Governor of the Colony of Virginia in 1616; two years later, he seized everything that belonged to the community and fled, leaving six goats from the entire community wealth; everything that could be taken away, he loaded onto his ship and sold in England at a great profit. Having paid for the services of lawyers with part of his booty, he was able not only to get away from the court, but, having distributed bribes to the right people, he received a peerage for his services in the development of new territories in America and was appointed representative of the British crown to the Council of the American Colonies. A tradition of deceit, manipulation and deceit, and creative problem solving, has been a feature of American life since the early days of the British colonies. The first known swindler in American history was Captain Samuel Argall, who was appointed Lieutenant Governor of the Virginia Colony in 1616. Two years later, he seized everything that belonged to the community and fled, leaving six goats out of all the community's wealth. Everything that could be taken out, he loaded onto his ship and sold in England at a great profit. Having paid for the services of lawyers with part of his booty, he was able not only to get away from the court, but, having distributed bribes to the right people, he received a peerage for his services in the development of new territories in America and was appointed representative of the British crown to the Council of the American Colonies.

Economic crime in Russia looks like naive provincialism compared to the polished style of the giant fraud of the Western commercial world, especially the US. This is the most obvious advantage of Western civilization over Russia. The Western man gets enough training in business rationalization and respect for the law. He will not fool someone over trifles. Deception on trifles is not productive. Economic crime in Russia looks like naïve provincialism compared to the polished style of the giant swindle of the Western commercial world. This is the most obvious advantage of Western civilization over Russia. The Western man gets enough training in business rationalization and respect for the law. He will not fool someone over trifles. Deception on trifles is not productive. To pay its obligations, the Fed can issue exactly as much money as it needs. At the same time, the devaluation of the dollar is a hidden US default, a hidden visible repayment of obligations, but the actual payment of these obligations discounted by the amount of devaluation of money. It is for this reason that when I say default, I mean in the first place a significant devaluation of the US dollar.

1838 - First US default.

Rather, it was the default of municipal bonds popular at that time in eight southern US states (Arkansas, Indiana, Illinois, Louisiana, Maryland, Michigan, Mississippi and Pennsylvania), as well as Florida, which at that time did not have the rights of the state. The default was justified by "dislike of foreigners and fear of foreign influence." What needs to be known here is that most of both municipal bonds and US Treasury bonds were in the hands of foreigners, mostly British investors. The British actively bought these bonds, despite the fact that only a couple of decades ago they were at war with the United States (1812-14). Therefore, there were clear sociological and psychological reasons for the Americans to "dump" their former colonizers. The economic reasons for the default are the active borrowing of the southern states, the repayments and interest payments of which were refinanced by subsequent borrowings. Thus, financial pyramids, painfully familiar to Russians and Ukrainians, were rebuilt. Previously, the states had the opportunity to refinance to pay off the principal amount of the debt and pay interest in the Second National Bank of the United States, the prototype of the US Central Bank (Federal Reserve System - Fed). However, in 1836 this bank was closed and the only hope of the American states was the external market, the capacity of which is limited. “When the bank was liquidated, the states lost the ability to borrow funds from the bank to pay interest on their bonds. As a result, the United States acquired the reputation of an unreliable borrower, and the British dubbed this country a “nation of swindlers.” At this time, the popularity of the United States as a safe depository of money declined sharply, which was formed during the Napoleonic Wars of the early 1848th century due to the unique geographic location of the country.By the way, both the British and other foreign investors continued to invest their money in the United States, even after the default.The reason for this was the truly huge prospects for enrichment, which in Old Europe was long gone, and social tensions in Europe were higher, threatening revolutions, political instability, and the abolition of private property (Karl Marx's "Communist Manifesto" was published in XNUMX).

1893-95 - the second US default.

Although the matter did not come to the actual default, the US Treasury managed to avoid it only by paying the financiers a huge amount. At the end of the 1861th century, the United States was still a debtor country that owed foreigners more than it earned from them. The result of this dependence was a deterioration in the US balance of payments and a sharp decrease in the US gold reserve (at that time, the gold reserve was a kind of analogue of foreign exchange reserves). The latter was explained, among other things, by a decrease in state budget revenues, primarily due to protectionist tariffs, as well as due to an increase in pensions for veterans of the civil war of 65-1893. Thus, in April 90, only a quarter of the dollars in circulation were backed by gold. In the early 1893s of the XIX century, foreign investors panicked in connection with the debate about the gold or silver backing of the dollar and began to actively sell American securities and export gold from the United States. In the autumn of 80, the value of the gold reserve was reduced to $100 million, although a few years earlier, $1894 million was recognized as an acceptable level of reserves. In August 60, the federal budget deficit (the first deficit recorded after the Civil War) reached $65 million The situation was saved only by a banking syndicate led by Pierpont Morgan and Auguste Belmont (representative of the Rothschild banking house in the USA), which placed US Treasury bonds in the amount of $6 million in England for a very decent reward. was saved from ignominious bankruptcy and US default. The banking syndicate on this deal earned about $9 million, or more than XNUMX% of the placement amount. Even at the time, this was a fantastically huge underwriting percentage, reflecting the magnitude of the US Treasury's problem.

In the future, as we shall see, the US government took simpler and cheaper decisions, not declaring a default on government obligations, but devaluing the US dollar.

In the meantime, it was in the 90s of the 1879th century that the United States, not without the influence of British investors, made the final choice in favor of the gold standard of the dollar, despite active attempts since XNUMX to introduce bimetallism (backing the dollar with both gold and silver).

1933 third US default

As the inauguration of President Franklin D. Roosevelt approached in 1933, the financial system of the United States was in grave danger. The fear that Roosevelt would devalue money drove speculators to exchange dollars for gold, which caused the Treasury to lose its gold reserves at a tremendous rate. On March 5, the day of his inauguration, Roosevelt issued an executive order in which he announced a bank holiday until Thursday, March 9, and also stopped the exchange of dollars for gold and ordered US citizens to turn in their gold bars and coins. In order for bank settlements to continue to take place, temporary money was introduced - certificates of the Clearing House and other evidence of claims for bank assets. At the same time, the gold content of the US dollar was reduced: the price of gold pegged to the dollar was raised from $20.67 per troy ounce to $35, i.e., the dollar was devalued by more than 69% at once. As journalists of The New York Times noted, "the legal aspect of the devaluation was also important, since earlier it was especially emphasized that the depreciation of government and corporate bonds was impossible. Their owners were assured that they would be able to get dollars at the old gold rate - 20.67". In fact, the article on the payment of gold under public and private contracts worth more than $100 billion was annulled. The amount of losses on dollars devalued in this way amounted to about $60 billion (in current prices, more than $800 billion) - instead of 4.84 billion. ounces of gold (150 thousand tons), if the entire debt was presented for conversion into gold, investors were "offered" 2.86 billion ounces (90 thousand tons). By the way, currently the world's proven gold reserves are estimated at 1 billion troy ounces (about 31 thousand tons), and the reserves of central banks amount to 36 thousand tons. Thus, the abolition of the conversion of the dollar into gold was an inevitable step, since the obligations denominated in US currency far exceeded the amount of explored and existing gold reserves.

At the same time, the conversion of foreign dollars remained, albeit at a new, largely devalued rate.

After changing the gold content of the dollar and prohibiting Americans from converting it into gold, investors began to go to court demanding compensation for the damage caused by changing the gold content of the dollar. On February 18, 1935, the Supreme Court of the United States put a final end to these cases, which supported the gold law by a majority of votes. He concluded that the government's withdrawal of the gold equivalent of its own bonds was generally illegal, but stressed that nothing could be done about it. The court stated that the US Congress had the power to change bond contracts. In fact, it was announced that, despite the violation of the law and the US Constitution, the President, Government and Congress had the right to change the terms of their obligations, referring to the poor state of the country's economy and the threat of mass bank failures, and after it, enterprises. After four years of the Great Depression, public opinion did not oppose this wrongdoing by top US officials, tacitly sanctioning the redistribution of wealth.

1971 fourth US default

On Monday, August 15, 1971, President Nixon announced that, from now on, the United States would cease converting foreign-circulating dollars into gold, thus unilaterally revising the international monetary system that had existed for 25 years. How many pounds, marks, yen and francs can be bought with one dollar tomorrow depends on the decisions of other countries. In some countries, the dollar will "float", rising and falling in daily trading. A period of turmoil is inevitable in foreign currency markets, which means uncertainty for US tourists, exporters and importers.

The President said he took this action to prevent "an attack by international speculators" on the dollar. He did not raise the official price of gold, which had been $35 an ounce since 1934. By the time of this statement, there was growing concern in the world about the stability of the dollar, whose rigid peg to gold had long since failed to reflect its true value. So, back in 1968, a book by Adam Smith (a pseudonym of a well-known journalist, not to be confused with an English economist of the 2000th century) "The Exchange - a game for money" was published, published in Russia in XNUMX.

In order not to misinterpret, I will give a few excerpts from it, which even today, 35 years later, look so modern.

“One day in the spring, or maybe not in the spring, it will rain, or maybe it won’t,” said Gnome from Zurich. “The market will bubble and gurgle, the mood around will be the most peaceful, housing construction will be on the rise, and all brokers will be watching the ticker tape with frantic energy calling their clients. On Wednesday the market will begin to falter, and on Thursday it will weaken. Taking profits, the sages will say, taking profits...

The only stocks that will go up on Thursday will be American South Africa and House Mines, that is, gold stocks... On Friday evening, the Treasury will make a quiet little announcement... The Treasury will say that we are living in a modern era. And gold is a relic of barbarian times. Therefore, the Treasury will say, we are decoupling gold from the dollar, and let them now float independently of each other...

The dollar is a true international currency. Some would like to believe this forever, because alternatives are crumbling and international trade is undermined by widespread uncertainty. So all the states of the world are getting together and trying to find something else, some kind of international checking account. Meanwhile, mistrust of the dollar is growing because every year there is a trade deficit... Vietnam costs you a ton of gold... the money you spend there goes to the Indochina Bank, owned by the French. From there they go to Paris and become a gold claim placed on New York. Did you know that the Chinese are raking in the gold?...

...Of course, your Treasury will never voluntarily devalue the dollar. But they have committed themselves to supply gold at thirty-five dollars an ounce, and as the speculators have more and more gold, and the Treasury has less and less, it is quite certain that one fine day..."

The result of the devaluation - by the end of the 70s of the 1971th century, the dollar lost half its value against the German mark and one third against the Japanese yen. Since 9, gold has risen in price by 35 times (from $325 per ounce to $4.4) to date, while prices have risen by 1971 times. Thus, the net devaluation of the gold content of the dollar from 2002 to the present (summer 111) was 100%, i.e. for 1971 dollars in 2002 you can buy half as much gold as in 3 dollars. By the way , the broad money supply M1971 from August 2002 to the summer of 10 grew more than XNUMX times. And if gold at that time was underestimated by about two times, then even now, in relation to the mass of dollars in circulation, it is underestimated - by about the same two times.

This measure, combined with the limitation of wage and price growth, tax cuts and the federal budget, made it possible to:

▪ reduce unemployment from 6.1% in August 1971, the highest level in the previous 10 years, to 4.6% in October 1973;

▪ improve the situation in industry - capacity utilization rose above the key level of 80, supporting the growth of industrial production volumes; - Over the next year and a half, US GDP growth averaged 7%. So we can say that the Americans fulfilled their task - by reducing the burden on the dollar, they played into the hands of exports, supporting industry.

At the same time, the financial markets were shattered - interest rates shot up to 1973% in 10, simultaneously collapsing the balance of payments to a deficit of 0.43% of GDP (due to capital flight from the US). Note that the subsequent devaluation of the dollar led to the oil shock of 1973. But that was later, and in the short term the United States definitely won. And again at the expense of foreign investors, along with holders of gold reserves.

At the moment, if the dollar devalues, the already depressing balance of payments (deficit of 1.1% of GDP) will take a serious hit - in the short term, an improvement in the trade balance will not compensate for the volume of capital flight from the United States.

Conclusions

Recent events in the global financial markets of the world indicate a high probability of dollar devaluation

▪ active buying of gold and silver is observed (there are scenarios where the price of gold could reach $2003 per ounce in 800, and for silver $200 per ounce - compare with current prices of $325 and $5, respectively);

▪ over the past six months, the dollar has lost more than 10% of its value against leading currencies, despite the visible political and economic problems of Europe and Japan.

If economic growth in the United States does not begin in the very near future (at least in 2002), which does not provide additional revenues to the country's budget and does not return foreign investors to the US capital market and does not restore confidence in the dollar and the balance of payments, the US dollar will be devalued .

However, this will not be a voluntary act of desperation, but only a forced measure to reduce the burden on the federal budget (huge debt and interest payments on Treasury debts), as well as stimulate economic growth.

America's current problem is debt. Debts to all. Debts for interest and interest-free (cash).

Any banker knows that when the limit on one borrower reaches the upper limit, he is forced to either reduce his debt (if he works at a profit, which cannot be said about the United States now - the federal budget deficit is proof of this), or declares a default. You must be prepared for the worst case, and then the events of September 11 will have a completely different color for you.

Now tell me, who benefits from these crises? - asked the president and answered his own rhetorical question: - Not a worker, not an investor, not a true producer of wealth. International currency speculators win.

US President Richard Nixon August 15, 1971, in a speech that introduced the floating dollar.

The main thing I want to tell you here is that if you think that the US has never "thrown" anyone, you are mistaken. It is not the first time for Americans to sacrifice foreign investors by blaming them or the international environment for their troubles.

Authors: Shevchuk D.A., Shevchuk V.A.

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