Debts – source of financial and economic instability in the world

Abstract

Uncertainty in international financial and currency markets has become common, while the only countries spared from the crisis are those that have been isolated from the rest of the world for many years. These countries have refused to integrate into the world market economic system with international rules of behavior, for example China, North Korea, Venezuela and others. The crisis in mid 2008 was preceded by a period of strong inflation growth. It is significant to point out that the most intense crisis has affected the world`s most powerful states, such as USA and Western European countries and their large banks, financial institutions and powerful corporations. The governments of these countries have formed the assistance packages to rescue its economies (bail out), that have primarily been focused on direct financial assistance to banks and financial institutions and large corporations , such as General Motors, Chevrolet, Opel etc. However , debt crisis of private companies spilled into government debt crisis in countries that have pumped taxpayers` money during so called «bail out». The enormous growth of budget deficits and public debt has shaken the confidence of investors in government securities, normal financing of daily government operations and outstanding liabilities in countries such as Italy, Spain and others. Government intervention saved the claims of numerous private and institutional investors, but due to this states themselves faced the problems of enormous increase of budget deficits and public debts. Therefore, the solidarity of private capital to the financial hardships of state and its citizens is essential for successful recovery from this major crisis and for creating preconditions for real economic progress in the future.