People’s Daily recently published an article discussing the relationship between the financial industry and the real economy. The article referred to an IMF statement that, if the financial industry holds too large a share of the economy, then the cost of a financial crisis will wipe out the contribution the financial industry has made to the economy. It seems advanced economies such as the U.S. and Japan are showing signs of overdeveloped financial industries. The article pointed out that the purpose of the financial industry is, in fact, to serve the real economy. Overdeveloping it may result in bubbles of overpriced assets, a lack of sufficient regulation, and wasted liquidity within the financial industry. The U.S. economy demonstrated all these issues in its development history; the world economy is still suffering the consequences of the last financial crisis. The article concluded that the rebalancing of the financial industry may take a long time to reach its end and the global capital market could still face another crisis in the near term.
Source: People’s Daily, May 28, 2015