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    Global Financial Crisis & Its Implications For Shari'ah: Prof. Dr. Ahamed Kameel Mydin Meera

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    The global financial crisis started with the subprime mortgage crisis in 2007 and led to a money meltdown as the housing bubble burst. The current monetary system is based on fiat money and fractional reserve banking which allows constant money creation and debt growth. This led to the creation of an unsustainable housing bubble. As financial institutions collapsed in a domino effect, widespread destruction of money occurred and the world entered a recession. The current monetary system has failed and a new system based on commodities like gold is needed to stabilize currencies and the global economy.

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    Global Financial Crisis & Its Implications For Shari'ah: Prof. Dr. Ahamed Kameel Mydin Meera

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    engroniyide
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    The global financial crisis started with the subprime mortgage crisis in 2007 and led to a money meltdown as the housing bubble burst. The current monetary system is based on fiat money and fractional reserve banking which allows constant money creation and debt growth. This led to the creation of an unsustainable housing bubble. As financial institutions collapsed in a domino effect, widespread destruction of money occurred and the world entered a recession. The current monetary system has failed and a new system based on commodities like gold is needed to stabilize currencies and the global economy.

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    RamadhanTalk[1]

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    The global financial crisis started with the subprime mortgage crisis in 2007 and led to a money meltdown as the housing bubble burst. The current monetary system is based on fiat money and fractional reserve banking which allows constant money creation and debt growth. This led to the creation of an unsustainable housing bubble. As financial institutions collapsed in a domino effect, widespread destruction of money occurred and the world entered a recession. The current monetary system has failed and a new system based on commodities like gold is needed to stabilize currencies and the global economy.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    61 views26 pages

    Global Financial Crisis & Its Implications For Shari'ah: Prof. Dr. Ahamed Kameel Mydin Meera

    Uploaded by

    engroniyide
    The global financial crisis started with the subprime mortgage crisis in 2007 and led to a money meltdown as the housing bubble burst. The current monetary system is based on fiat money and fractional reserve banking which allows constant money creation and debt growth. This led to the creation of an unsustainable housing bubble. As financial institutions collapsed in a domino effect, widespread destruction of money occurred and the world entered a recession. The current monetary system has failed and a new system based on commodities like gold is needed to stabilize currencies and the global economy.

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    Download as PPT, PDF, TXT or read online from Scribd
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    of 26

    Global Financial Crisis & Its Implications for Shariah

    Prof. Dr. Ahamed Kameel Mydin Meera

    Global Crisis

    Started from Subprime Mortgage Crisis mid 2007


    Money meltdown From burst of housing bubble

    Main Characteristics of Present Monetary System


    Fiat Money Fractional Reserve Requirement Interest-based

    The Creation of the Mammoth Housing Bubble


    Excess dollar liquidity is churned into a housing bubble through the subprime mortgage Sell High-Risk Subprime Mortgage

    Insurance Firms
    AIG, etc.

    Insure Subprime Mortgage default using credit default swap

    Mortgage Lenders
    Freddy Mac, Fannie Mae, etc.

    Investment Banks
    Goldman Sachs, Lehman Brothers, etc.

    People
    Sell Subprime Mortgage as safe, high-return investments to financial institutions and individuals

    Subprime Mortgage given To High-Risk Individuals

    Insurance and Other Financial Institutions

    Nature of Fiat Money

    Creation bubbles

    (inflation)

    Continuous Growth of Money = Debt

    Destruction - meltdown

    America has a total debt of $53 trillion and the highest debt ratio in history $175,154 per man, woman and child or $700,616 per family of four

    Source: http://mwhodges.home.att.net/

    Destruction of Money
    Contributes to Recession

    Destruction of Money
    Efficient Economy Money as medium of exchange

    Barter Economy

    Recession

    The need for liquidity injection Financial institutions the bailouts


    Real economy e.g. GM, Chrysler, Ford

    IMF: World economy expected to recover slightly OURS: World likely to remain in recession . or even into depression
    Exceptions: India, China,

    Still Recession, or Depression? Why?

    World overloaded with fiat debt


    with compounded interest System unsustainable

    Major Economies in Kondratieff Winter

    Kondratieff cycle - capitalist economies

    displayed long wave cycles of boom and bust ranging between 50-60 years in duration Last Kondratieff cycle ended, around 1949, we have seen beneficial inflation 1949-1966; stagflation 1966-1982; beneficial deflation 1982-2000; and we are now in the (winter) deflation cycle, which should lead to depression.

    Major economies in liquidity trap


    Price level rise, interest rate tends to fall Liquidity trap

    Individuals and businesses are highly indebted Interest rate cuts do not stimulate economy

    Nature of Financial Assets


    Just Claims Form a web of double-entry accounting records So are banks and financial institutions worldwide

    Nature of Financial Assets


    When one financial institution collapses, it affect another and yet another in a domino fashion.

    DESTRUCTION OF MONEY
    takes place

    Domino Effect
    Crisis has spread to Europe Japan, Hong Kong & Singapore too Dubai Europe sovereign defaults Greece, Ireland, Spain, Portugal etc. Malaysia and other developing nations?

    Domino Effect
    Loans, bonds and sukuk denominated in dollars are highly vulnerable

    Will the $700b bailout work?


    Crisis started from real economy Need to give clean-slates to both sides - financial sector and the real sector One-sided bailout tantamount to a humongous theft.
    Bailout may give a false sense of market recovery Thing to watch is the real economy the employment data

    Expected Effects
    A world recession (Not a normal recession)
    A depression? High unemployment rates worldwide

    Serious inflation hyperinflation beginning with assets priced in dollars commodities like grains etc. Global chaos and conflicts
    - Greenspans Age of Turbulence ?

    Likely wars

    Effects on Gold
    Negative correlation with dollar index Proven inflation hedge Asset of choice in chaotic, war and times of turbulence Proven money, store of value Re-emergence of the Shariah money?

    Gold price is likely to increase considerably in 2010 due to dollar vulnerability

    Failure of Current Monetary System


    Greenspan admitted in testimony to a congressional committee on 23 October 2008, that there had been a flaw in his governing ideology.

    I had been going for 40 years with considerable evidence that it was working very well. The whole intellectual edifice, however, collapsed in the summer of last year Alan Greenspan
    Financial Times, 24 October 2008, p1.

    Effects on Shariah
    Collapsing monetary system and the ensuing economic and political chaos Search for new monetary alternatives Vulnerability of Islamic banks Attempt towards global central bank with single global currency SDR? Legal-tender law Internal & External threats

    Effects on Shariah The success of Islamic monetary system lies in using commodities as measure of value

    The Needed Solution


    Debt write-offs - partial or full - for all. Make credit available to all - just like other public goods
    It should be interest-free since it only requires the recording of accounting entries.

    Gessells free-money concept - e.g. WIR Bank, Switzerland

    The Needed Solution


    Global money based on commodities, particularly gold
    Allows neither the creation of money, at the stroke of the pen, nor the destruction of money

    Bretton Woods II etc. Regional Complementary Currencies Effectively a fixed-exchange-rate regime

    The Needed Solution


    Fiscal Stimuli
    Large infrastructure projects roads, railroads, bridges, dams, hydroelectric and nuclear power stations etc. Transcontinental roads and railroads

    Wealth and land redistribution where necessary

    Wassalam
    www.ahamedkameel.org

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