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Economics 319-1 - Essay Example

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Financial Crisis is a term used to refer to a variety of situations where financial institutions, such as banks, or assets unexpectedly lose a huge fraction of their value with many detrimental effect to the economy. Many economists have theorized on how crisis develop and how…
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Economics 319-1
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Economics 319-1

Download file to see previous pages... The financial crisis put to waste years of growth and resulted to unfathomable harm the fundamental productivity of the economy. One of a direct result of financial crisis is the loss of paper wealth (that can be measured monetarily). Loss of paper wealth has an indirect effect on the real economy in that it effects are felt incase depression or recession follows.
The 2007-2009 financial crisis originated from within the United State market. it coincided with what many saw as a shift from the geopolitical dominance of the United States to a multi-polar international framework. It was not accident but rather a mistake driven by deregulatory mentality that took half a decade of post-New Deal financial stability for granted. The crisis was a failure of free market capitalism and over regulation which helped sow the seed of the crisis. The world experienced the most severe financial crisis in most recent times since Second World War. It was precipitated by sub-prime mortgages crisis which became apparent to the wider public in the year 2007. In 2008, it became a global financial crisis, and consequently into a global economic down turn that forced many countries to into recession. Stock market fell, large financial institutions collapsed and government had to come up with rescue packages to bail out the financial systems (Manuel, 2009).
For a clear understanding of the crisis there is need to look at the economic happenings of Post -world war II. This period shows a significant decline in the rate of profit in the economy of the United States. From 1950 to mid 1970s, profit rates declined almost by 50%.
As in past depression times, this decline triggered reduction in business investment, and consequently slower growth and higher unemployment rate. As a result many governments adopted expansionary monetary and fiscal policies. However the policies resulted to higher inflation rates ...Download file to see next pagesRead More
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