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Financial Upheavals. Financial crisis - Essay Example

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Financial crises are inevitable and seem to be a usual and reasonably invariant characteristic of such business cycle. The economic system of any country is subject to discrete business cycles that lie on the boom-depression continuum. …
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Financial Upheavals. Financial crisis
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Download file to see previous pages The aftermaths of any such business cycle may vary from being modest to remorseless hinging upon its magnitude and continuance. History show that the American economy has moved through periods of boom, recession and recovery. The years 1837, 1893 and 1929 help retrace the occurrence of three major depressions in United States (Calomiris 2010). The downturns of 1857, 1873, and 1907 are also referred in the history books (Rothbard 2002). The America of 1819 and the financial crisis its people went through was only the first of speculative cacoethes which is America's true national interest (Maloney 2009). But then again, the Great Recession of 2008 is the latest financial turmoil in the United States, the twinges of which are still being sensed. Both these financial upheavals resemble one another with respect to their causes and consequences. For instance, they headed to extended bank failures, loan foreclosures, high unemployment rates and a depression in manufacturing sector. The causes of the panic of 1819 can be assigned to the economic system of the United States (Rothbard 2002). The panic of 1819 ended the tremendous economic expansion that occurred after the War of 1812. Rampant inflation, debtors’ relief which was constantly associated with monetary strategies and a protective tariff on imports worked as a pivotal point in creating the situation of panic in the US at that time. Whereas, the oncoming of the Recession of 2008 can be assigned to complicated and interconnected constituents. Sub-prime loans, lax financial regulation, loose monetary policy and global instabilities collectively induced the latest financial upheaval that caused entire world staggering. This suggests that there were more than one element that sparked off the two financial upheavals discussed above. Among those major causal elements, monetary policy played a key role to trigger the financial turmoils. The purpose of this paper is to compare and contrast these two historic financial upheavals; the earliest and the latest to have rocked the United States of America with special emphasis on the role of the monetary policy in each case. The Panic of 1819 The major causes of the panic of 1819 were delved within the US economy. Similar to so much of what is disastrous to civilized society, the Panic of 1819 had been produced in the violent agitation particularly of the War of 1812. The young American economy confronted many rapid breakdowns that were brought by the War of 1812 and its consequences. United States previously had been a big country with a thin population of around seven million which were mostly committed solely to agriculture. Many agricultural products such as wheat, cotton, and tobacco were exported across borders, although the residual of the agricultural products was mostly consumed by self-sustaining rural families. Public debt held by Americans during the war of 1812 induced the prices rise throughout the United States. At that time, the monetary system of the country was not advance or highly-developed. The American banks were restricted almost entirely to the cities and their tools and methods to run the economy inclined to be lax with insignificant Government control. The reality, that most banks and other institutions of that era had to acquire their position by exceptional legislative charter, tempted inquisitive and high-risk misuses through exerting force on the legislature. All this resulted in an inadequacy of uniformity in administering banks within and among states. The emergence of the First Bank of the United States had regulated the banks towards uniformity until the year 1811. Irresponsible and mismanaged banking system had played a crucial role in creating that panic. From 1811 to ...Download file to see next pages Read More
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