The aftermath of the global financial crisis 2007-2008 - Essay Example

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The 2008 sub-prime crisis that emerged from the US mortgage market has eventually become a global financial crisis, severely hitting almost all industries worldwide and causing serious economic meltdown including growth of unemployment…
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The aftermath of the global financial crisis 2007-2008
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"The aftermath of the global financial crisis 2007-2008"

Download file to see previous pages Aftermath of 2008 financial crisis In a nutshell, the financial crisis has been the reflection of the imbalance between the growth of real markets and financial sectors. Some major US banks made easy availability of housing loans to its customers, which in turn had led to unprecedented debt-levels, as accounted to be three times the GDP in the US and Europe. Many of the banks’ customers defaulted in repayments of these loans and this bubble burst added liquidity and caused bankruptcy and closing down of these banks. The total economic impacts of this crisis has been accounted as one third of the total values of all companies worldwide. More significantly and obviously, millions of employees lost their jobs and many of them were pushed to poverty. When the recent financial turmoil has hit several economies worldwide, it was observed that due to the crisis, assets prices have been inflated, currents accounts reported larger deficits and slowed-down economic growth of most nations. Though these were quite commonly reported and widely discussed impacts of the crisis, changes in equity prices, employment and output were more dangerous impacts being studied and reviewed by some literatures. Reinhart and Rogoff (2009, p. 466) found that financial crisis in rich countries and emerging markets like Brazil, Russia, India and China have caused tremendous changes in economic variables in common. Broadly speaking, there have been major changing-patterns in housing and equity prices, unemployment rate, government revenues and debt. They detailed that major three impacts of the global credit crisis were a) collapse in assets market, b) profound declines in output and increase in unemployment and c) government’s debt explosions. The financial crisis has caused accumulation of stock of wealth with greater risks and losses in stock markets in almost all developed and emerging economies. The losses in stock market have been accounted as between 30 and 70 percent in 2008. The value of fund-assets have been declined by 25 or more percent by 2008 September and 2009 April. A number of companies found that their capitalization as already wiped out and as a result many of such companies became bankrupt. One very significant sign of this crisis has been falling housing prices in all those crisis-hit countries (Germain 2009, p. 672). Another major consequence of the recent financial crisis was decline in real per capita GDP. During the crisis, the decline in real GDP was smaller for advanced nations as compared with those of emerging countries. The financial crisis has been contaminating smooth functioning of the economy as it has generated a decline in the GDP during 2008 and 2009. According to IMF’s findings, the global activity would be contracted by 1.4 percent in 2009. GDP in real terms would be declining by 2.6% in the US, 4.8 % in the Euro-zone, 6.2 % in Germany and 4.2% in Spain (Pike and Tomaney 2010, p. 507). The 2008 financial crisis has increased the rate of unemployment worldwide. As a result, absolute poverty was more likely to rise in many countries. income disparities were found in most regions of the world due to severe financial crisis. It was projected that global unemployment would be increased by ...Download file to see next pagesRead More
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