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What are global imbalances Did they cause the 2008 crisis - Essay Example

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One of the crucial global economic concerns prior to the 2008 crisis was the existence of large ‘global imbalances’ that relate to the extreme and persistent current account deficits experienced in the American economy. Global imbalances relate to the situations where some…
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What are global imbalances Did they cause the 2008 crisis
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Download file to see previous pages Some researchers note that the global imbalances did play a critical role in the 2008 crisis. On the other hand, other researchers note that the global imbalances had little to do with the 2008 crisis. In essence, the economic research paper seeks to demonstrate that global imbalances did not cause the 2008 crisis.
It is noteworthy that there were global imbalances between the U.S economy (deficit nation or country) and the Southeast Asian and oil-exporting, as well as European nations (Superavit nations). In the course of understanding the connection between the global imbalances and the 2008 crisis, it is ideal to note the influence of the other economies on the economy of the U.S. In the first instance, it is critical to note that the current surpluses were available in the U.S. financial markets (Caballero et al., 2009). The outcome of the current surpluses was evident in the pushing down of the long-term interest rates, thus the potentiality and ability to promote, as well as engage a credit boom and the real estate bubble. Moreover, there was substantial or significant increase in the risks of the size of the economy involved in the global imbalances, as a sever correction could have had negative implications for the global economy. In the process of evaluating this relationship between global imbalances and the financial crisis, it is critical to assess the implications of two pre-crisis perspectives (Dooley, Folkerts‐Landau, & Garber, 2009).
First, it is ideal to concentrate on the assessment of the new paradigm. According to this perception, global imbalances provide a new type of global equilibrium which could undergo substantive maintenance over time without necessarily ending in crisis. One of the approaches towards maintenance of the global equilibrium was saving glut rather than the implementation of any policy intervention (Nier ...Download file to see next pagesRead More
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