Study Of Financial Fragility In The Evolution Process Of Financial Fictitiousness

Since2008, the US Subprime Mortgage Crisis caused by the Financial Crisis hascontinued to spread in the whole world. The Financial Crisis has fully revealed itsdevastation and the fragility of the financial system. The huge tremor caused by therecent Europe debt crisis has made us realized that the crisis is not really over, and thecost of the crisis has far surpassed our expectation. In the past2decades, the financialinterest groups have caused various problems, including the imbalance of thefinancial system between the entity economy and the virtual economy, financialleverage generalization, the increased centralized market and cross-border transferrisks. So how to prevent the financial fragility so as to restrict it to the tolerableextension to keep up with the speed of the economy development is a profoundproblem.In fact, the fundamental reason of the financial crisis lies in the inherentfrangibility of capitalism. And the financial fragility tends to intensify against thebackground of the imbalance of the entity economy and the virtual economy. Thoughthe virtual capital has temporarily eased the conflict between the overproduction andthe inadequate consumption, it causes much more serious overproduction in the futureand aggravates the economy fragility and instability, thus leads to the imbalance ofthe global economic structure.At the background of financial globalization, the virtual economy has exceededthe scope of entity economy, which shows a kind of obvious pour pyramid. Financialcrisis interacts with economic crisis, which forms a reciprocating cycle of financialcrisis and economic crisis. That can not be solved by the capitalism and reflects theunconquerable institutional inner defects of the capitalism.According to Karl Marx, financial crisis always appears in the form of currencycrisis. Currency has a history of thousands of years in the human society and it hascome through3stages: commodity currency, representative currency and creditcurrency. The development of currency is a process of gradually breaking away fromits own value to rely on credit. Currency is a sign of value and quite parts of it are inevitable virtual. From this point of view, the financial virtualization starts from theemergence of currency. The emergence of credit currency separates the time andspace of commodity business, which shows a unsymmetrical relationship of, thusmakes currency the virtual character.Credit is a special form of value and plays a crucial role on the steadydevelopment of finance. Financial fragility lies on credit to some extent. And theprocess of credit is the process of virtualization. Financial crisis or economic crisis, inthe final analysis, is a kind of credit crisis. In financial sectors, the creation of creditmoney is of significant influence, for credit money is the joint to connectmicrofinance with macro-finance.When the supply and demand for currency lose balance, the acceleration of theevolution of virtual currency makes money away from the real economy and stay inthe virtual economy. The credit money creation system of modern banks makescurrency to grow at a geometric multiplier rate, which provides the foundation for theproduction and expansion of the financial bubbles. And the development of virtualcapital market makes the monetary policy transmission mechanism more complicatedand the goals of monetary policy unexpected. The evolution of financial virtualizationhas weakened the effect of monetary policy.In the economy which took the indirect financing as main body, total fragility offinancing structure depends on the banking system, while the stability of economystructure depends on the stability of financing structure. Therefore, the key factshould be paid attention to that the banking is the key factor which causes andexpands the financial fragility.From this point of view, the endogenous financial fragility becomes moreobvious. The development of finance is accompanied by the financial fragility.So asa developing country,we must keep a clear understanding that when we promote theeconomy by credit expansion and develop finance sectors. Though the developmentof finance has some relationship with the increase of economy, the increase ofnumber does not mean the improvement of the quality of the development of finance.With low efficiency, the pursuit of quantity instead of quality would lead to theaccumulation of financial fragility. And the financial crisis thus will approach. So it is unwise and costly. Therefore it is very important for our country to pay attention tothe sequence and overall speed of the financial liberalization process.Financial fragility shows the conditions of a country’s macro-economy and thewhole financial situation. The research in this thesis shows that the extent of financialfragility in our country is affected by the conditions of macro-economy, the state debtand the financial market. The cycle fluctuation of macro-economy，especially theincrease rate of M2, plays a crucial role on the changes of financial fragility. It showsthat the monetary policy in China has a continuously intervention with the financialfragility and it also reminds us of careful using monetary policy means with certainforesight.The recent financial environment has undergone fundamental changes with thatin the past. With the deepening financial development and virtual, the modern financehas taken great changes from the traditional one. The authority should focus on thehigh virtual financial market and all its financial instruments, which are the sectors ofhigh risk and fully shows the financial fragility. To keep the stable development ofmacro-economy, the long-term financial supervise system to prevent and solve thefinancial crisis and risks caused by the financial fragility should be established.