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Global Financial Crisis: Causes, Consequences, and Responses in US and Saudi Arabia - Research Paper Example

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This paper aims to discuss the causes and consequences of the financial crisis in the U.S. and Saudi Arabia, as well as the actions, are taken to recover the economy. These two countries are both affected by the economic recession, the consequences and ways of coping the problems are different…
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Global Financial Crisis: Causes, Consequences, and Responses in US and Saudi Arabia
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Download file to see previous pages The economic system of the United States is capitalism. This allows private ownership to stimulate production of products and services with low interference from the government. Since this system has been utilised by US, all the people are affected during the global financial crisis (GFC) considering that most businesses are privately-owned. GFC started in 2006 when there was a rise of subprime mortgage delinquencies. Housing rates in the U. S. are generally high and people cannot anymore afford to pay with the rates. Householders were forced to leave their homes since their property was foreclosed. Likewise, the investment of business and clients spending of goods also decline which resulted to decrease of country’s GDP (Marshall 26). Further, knowing that U.S.’s housing rates were high, foreign investors took opportunity to invest in the country's market through the issuance of mortgage security like CMO. Yet, when the mortgage securities began to decrease, institutions were not anymore willing to let their cash to be borrowed due to lack of trust. Further, the inventors made efforts to liquidate assets to stay out from investing. However, there were no buyers of assets in the market. As the credit became deficient and because of loss of trust of the financial institutions in the US, foreign banks started to increase the rate of interest “which they lent money from each other” (Bolton 5). In 2008, the Lehman Brothers bank, which is one of the biggest investments in the world, was bankrupt. As a result, the U. S market collapsed, and there was a high rate of unemployment. Consequently, the country’s main imports and trading to other countries like Saudi Arabia also declined which makes the problem spread globally. Causes and Consequences of Financial Crisis in Saudi Arabia Saudi Arabia has a capitalist economic system like United States. The country’s economy mainly centers on oil. In fact, Saudi Arabia is the biggest producer and exporter of petroleum globally. In relation with the GFC which began with the subprime mortgages in the United States, Saudi Arabia like other countries was impacted by the said financial crisis. Following the collapse of U.S.’s economy, the imports and trading of United States to other countries especially in Saudi Arabia also decline. The financial crisis in Saudi Arabia is due to the decline of oil prices from $147 per barrel in July down to $38 in December 2008 which is caused by the economic downturn of United States’ economy (Dhillon and Hakimian) It can be noted that United States is the most significant market of Saudi Arabia’s petroleum products. Thus, Saudi Arabia experienced more consequences of financial crisis. Other than the decline of oil prices, Saudi Arabia also experienced low economic growth because the revenues also lowered. As a result, the implementation of projects was also affected. Further, the finance from international companies investing business in the country was rarely available. ...Download file to see next pagesRead More
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