Economic Crisis

Economic Crisis

The global economic crisis of 2007 – present was impacted by a liquidity shortage in the United States banking system and spread all over the world. As a result, developing countries and emerging market run into a problem of decreasing in GDP growth rates, dropping exports, falling commodity prices, linkage of global investors, reducing the value of mortgage-backed securities, instability in a banking sphere, failures of private companies, increasing of unemployment. The most economists estimated this collapse as the worst financial crisis since the Great Depression of the 1930s. Predict the stabilization period of the world economy may be about several years and has at times refers to as “the Great Recession”.

Background and causes of economic crisis

Understanding of the sources of the current global decline has been a matter of high-priority in economics. Therefore, the basic occasions triggered the economic meltdown were the next:

easy credit conditions impacted pick in debt-financed consumption, so mortgage-backed securities and collateralized debt obligations appeared. Such financial securities attracted participants of the global economy to invest in the U.S. housing market;

housing bubble in the United States, which accompanied with default rates on adjustable-rate mortgage, increasing foreclosure activity and significant losses of major international financial institutions;

irregular estimation of the enormous role of investment banks and hedge funds, which had no relevant regulation and as a result – significant debts, great loan defaults and mortgage-backed securities losses;

incorrect pricing of risk, which market participants did not taking into account with financial innovation;

commodity price bubble caused by collapse in the housing bubble and increasing of oil prices;

worsening debt burden or overleveraging that enlarged vulnerability of the households and accelerated economic decline.
Economic aftereffects of a...

Similar Essays