Global Financial Crisis.docx
Added on - 12 Nov 2019
Running Head: Global Financial CrisisNameProfessorInstitutionCourseDateGlobal Financial Crisis Due To US
Global Financial Crisis2The Global Financial Crisis which is caused due to USAThe global monetary crisis, generally denoting the US 2008 great recession was causedby numerous factors, all taking place simultaneously and at the end led to a severe decline in theentire global economy .Financial crisis are usually characterized by declined inflations and risingof the rates of unemployment. These financial states follow periods of high growth in economyalso referred to as boom (Scott, 2013).This global fiscal crisis devastated both trade and consumers’ self-assurance in severalcountries. Considering its severe effects it was termed as great recession and led to high financialmeltdown spreading out at an alarming rate in every corner of the whole world. It was noted asthe most horrible case of the economic slump after the huge global depression faced followingthe Second World War (Scott, 2013).In regard to many economists, this global financial crisis mainly came up because of theabrupt busting of house bubble in US, caused by the fast growth of flawed directives of sub -prime mortgages. In order to understand this global financial crisis, this research has analyzedboth the consequences and causes of this great financial crisis (Scott, 2013).Business cycle vs. Global Financial CrisisBusiness cycles comprises of periodic variations in economic activities, such asproduction and employment. The usual cycle entails a rise in an activity up to when it reaches itshighest point or peak, and then followed by a drop in both the output and employment till theeconomy reaches its low point, referred to as a trough (Scott, 2013).
Global Financial Crisis3In reference to the Austrian business cycle theory, economic growth is viable if it comesas a result of increased investment funded by higher savings. Contrary to this, financial bang thatis as a result of growth in credit is unsustainable. In the cases where the creation of credit madeby the financial system surpasses the rate of saving by the society, the monetary mediators endup giving out loans at rates of interest which are below the standards where market forces clearin the market. Information is hence attached in marketplace prices is misleading, affectingentrepreneurial decisions and causes improper allocation of the resources in the entire economy(Reinhart & Rogoff, 2013).As a result, many capital goods and inadequate consumer goods will are produced inrelation to the final consumer inclinations. As the capital goods miss out on demand, productioncapacity runs dormant and the boom caused by the credit expansion bust.The 2002-2007expansion was described by both accommodation and the residential real estate boom. Thisboom ascertained to be unsustainable and closely followed by bust in both financial markets andeconomy at large which led to the global financial crisis commonly referred to as the greatrecession (Crotty, 2013).Economic business sequence indicatorsBusiness sequences are hard to foresee, but some gauges, referred to as indicators, areable to give indications to business managers, shareholders, and the officials of theadministration officials on the state of commerce cycles. Three main categories of business cycleindicators have been pointed out founded on timing: leading indicators, coincident indicators andlagging indicators. These indicators are put in place mainly to foresee both the troughs and peaks
Global Financial Crisis4of trade cycles in the USA and other 10 nations around the world, including Australia, China,Germany, France and Mexico (Scott, 201).Leading indicatorsThey are measures of the financial activities whereby the shifts can foretell the start of abusiness cycle. Some of the leading pointers comprise and not limited to weekly averageworking time in manufacturing sector, the order of goods placed by factories and the stockprices. A rise or turn down in these measures could send an indication on the commencement ofa business cycle. These indicators are given much concentration due to their behavior to shift ingo forward of business cycles (Scott, 2013).Lagging indicatorsLagging indicators entails the measures varying after the market has already gone into an era ofvariation. These indicators are: the standard unemployment length, the cost of labor permanufacturing unit productivity, standard prime rate, customer price index and the profitableloaning activities. These indicators are ignored sometimes because of their tendency to changethe direction after the economy moves into a business cycle. However, they can give valuableinsights on structural economy problems (Scott, 2013).Coincident indicatorsThey usually consist of the aggregate financial activity measures that adjust with theadvancement in the trade cycle. They aid in the definition of business cycles. Examples of theseindicators are the rate of unemployment, industrial production and the levels of personal incomes(Crotty, 2013).