Financial Crises: The Causes, Consequences and Cure - Literature review Example

What is more is that the crisis poses a serious challenge to the future transnational community’s sustainable development. Yardney, M. 2007. What does the American sub-prime mortgage crisis mean for Australia? http://www.propertyupdate.com.au/articles/254/1/What-does-the-American-sub-prime-mortgage-crisis-mean-for-Australia/Page1.html. 30 The financial crisis is a scenario in which the demand for money supersedes money supply – there is the rapid withdrawal of available money from banks evaporating liquidity as well as constraining banks to either collapse or else, to vend other investments in endeavoring to reimburse the deficit.

One can as well define financial crisis as an acute decline of a set of financial indicators including asset prices plus short‐term interest rates among others, which come with financial institutions’ collapses. Financial markets suffer disruptions following a financial crisis, which leads them ineffective in directing finances to those with the most prolific investment opportunities. A financial crisis, as a result, shifts the economy to equilibrium, with a harsh output fall from one with elevated output in which there is a great financial markets’ performance (businessdictionary.com, 2010).

Over the past three decades, finance defined the transition in the United States from an industrial society to a post-industrial one – from a society of organizations where corporations were vital building blocks that shaped their members’ daily lives, developing into a portfolio society characterized by increasing ties of household welfare to financial markets’ vagaries.