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Global Macroeconomic Imbalances as the cause of the crisis - Essay Example

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The project seeks to present the wide variety of views generated on the subject. There have been views that the global policies aimed at preventing the occurrence of another crisis must primarily need to emphasize on improving the banking regulations. Reducing the global imbalances is considered to be secondary to them. …
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Global Macroeconomic Imbalances as the cause of the crisis
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Download file to see previous pages This assignment seeks to present the various views of researchers with regards to the fact whether the micro-economic imbalance account for the main cause behind the crisis. The economic researchers have been increasingly involved in providing the basis and context for the occurring of the global financial crisis. Richard Portes have been particularly active in the media for his research on the origin as well as the implications of the recent credit crunch in the world economy. Richard has identified the main root and origin of the financial crisis as the world’s macro-economic imbalances which were responsible for bringing about huge inflow of capital across borders. This phenomenon was particularly overwhelming for the sophisticated financial systems present in the United States and the United Kingdom which was consequently responsible for the creation of asset price bubbles. This was also responsible for provoking ‘search for yield’ which with the support of the credit rating agencies resulted in the creation of ‘toxic assets’ in the economy. Moreover during the break of the crisis coordination from the Central Bank was inadequate or not sufficient. This was considered to the main reason behind according to inference of Richard Roberts. He has also proposed a suitable solution to the problem as identified as above. His suggestion to the world economy was to deal with the macro-economic imbalances and also the remove the weaknesses of financial regulatory system. According to him the combined impact of the two solutions simultaneously would be the solution to the financial crisis (London Business School, 2008, p.1). Critical Assessment Following are some of the findings of the London Business School. The Russian Default occurring in August 1998 and the near death experience of LTCM was one of the main causes of imbalance in the financial markets. There were pervasive fears across the global economy during the month of September in the same year and by the beginning of October the US Treasury became liquid to a certain extent. This resulted in the fall in the dollar by about 15% in relation to the Yen in three ...Download file to see next pagesRead More
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