Economic crisis Essay Example | Topics and Well Written Essays - 3000 words

Economic crisis - Essay Example Eventually, the crash of the entire world's economy was at stake. How did this happen What were the events that led up to it Will it ever end Is the debt bigger than the size of the economy Who is to determine who losses money and who can get his investments back Is this crisis only for the poor or will it make the rich poor According to Day, the main cause of the economic crisis is the "excess credit creation" over a long time period. As mentioned earlier the interest rate was really low and there was creation of 'artificial' money in the economy, which eventually led to "speculation and mal-investment." He also says that this is not one of the "normal cyclical" crisis. A normal cyclical crisis is when an economy faces recession after witnessing economic boom, but this one is much more than that it is not involving only one economy but the world economy. Also it is not something which happened suddenly rather it has been fueled over many years, it is referred to as a "secular de-leveraging contraction" (Day, p.1). The inefficient "Federal Reserve monetary policy" during the first few years of this decade might have been the reason for this financial crisis. It is sometimes thought by financial experts and economists that this crisis could have occurred in 2001 due to the flaws in the policies. The world economy, especially the United States economy suffered many losses due to the bursting of the dot com bubble. Other social acts such as the attack on world trade center and the war against terrorism also contributed towards the slow growth of the economy. Carefully and cleverly the financial experts avoided the crisis to happen in 2001 and prolonged its occurrence by ""keeping interest rates at abnormally low levels." Instead of addressing the problem the Fed authorities and policies kept advancing the high levels of liquidity in financial system they also "discouraged aversion to risk" not only in US but also among the "international investors" (Olivia, p. 5-6). Yet another issue was the "low interest rates," as the idea of "private consumption" was widely accepted in the US, and the government was acting as a natural right activist and fighting for the rights of the people of the world. Thus the amount of expenditure amounted to be really large. In order to maintain all forms of spending the levels of "debt" increased to a phenomenal level. This is usually knows as "global imbalances." The biggest problem however was the inefficiency of the entire financial system. This inefficiency was seen throughout the world and not only in the United States; the financial institutions were not following any strict regime or regulation before granting people access to use money (Olivia, p. 6). In November of 2007, the NASDAQ went down by 1,500 levels and Dow Jones touched because of fall in the retail sales. The same effect was seen in "Japan, Germany and Canada." Even companies in Asia, specifically India, started announcing decline in sales. Still there was no decline seen in the lending activities, however the falling rates of consumption