Roots and Causes of the Current Economic Crisis

The world financial crisis of 2007-2009 is compared to the Great Depression. Starting in the US, the crisis rapidly spread all over the world, leading to the growth of unemployment and inflation, collapse of small and medium businesses and other serious problems. The neutralization of crisis effects still remains one of the priority tasks in world countries along with the restoration of the economics.

Though the majority of ordinary people wasn’t expecting the crisis or couldn’t imagine its scale, it wasn’t unexpected to economists, who were able to predict the approximation of the crisis relying on the cycling of world economics.
It is impossible for world economics to remain stable: cycles of rise, peak, fall and depression occur constantly during its history. Such cycles are regular and inevitable components of economical development and so the period of fall was easily predicted because of preceded period of economical rise.

Essay Help on Roots and Causes of the Current Economic Crisis
Essay Help on Roots and Causes of the Current Economic Crisis

But the period of fall itself couldn’t lead to such scale of crisis that the world witnessed during past two years. The financial crisis was aggravated by other reasons – particularly by the uncontrolled emission of American dollar, one of the international reserve currencies.
The American dollar is issued by the Federal Reserve System of the United States. Also only the FRS has the right to control the size of dollar’s emissions without even reporting to the US government. Such freedom inevitably led to overproduction of the dollar – and that’s when the problems began.
Overproduction of the dollar gave the US government capacity to invest considerable funds into government programs aimed at improving the American standards of life. The conditions of mortgage crediting were simplified in terms of one of these programs and in the beginning were really effective.
But growing popularity of mortgage credits lead to the decrease in demand for real estate, which logically resulted in the reduction of prices. Soon the realty began to cost even less than the value of mortgage credit and the consumers started to deny their obligations. In turn the banks became unable to handle their payments, starting to recall their credits to cover the charges. This led to the liquidity crisis.
After the financial crisis has started in the US it was only the matter of time before he affected world economics. Because dollar is the most widespread world currency, its decline led to the collapse of economics in other countries all over the world. The other reason explaining the spreading of the financial crisis is the fact that the world economics is actually controlled by a number of large companies. When these companies began to suffer from financial losses, it affected all of their branches all over the world.
Therefore among the main reasons of world financial crisis the following may be named: the cycling of world economics, the overproduction of American dollar that was the most widespread world currency at that time and mass allowance of credit without credit check. Countries all over the world are still working on neutralization of crisis effects, inventing more and more government programs aimed at the recovery of economics. For example, the US government approved the package of measure for reducing the crisis, containing various programs. According to one of these programs large companies should be divided into smaller ones – in this case when one of these companies will experience financial difficulties, the other won’t be affected by it. Such measures are able to considerably decrease the possibility of another financial crisis of this scale.

Works cited:

Davies, Howard. “The Financial Crisis: Who is to Blame?”. Cambridge, MA. : Polity Press, 2010.

“Late-2000s financial crisis”. Wikipedia.org. Wikipedia, n.d. Web. 12 May 2011.

Chapman, Bob. “The Collapse of the American Standard of Living, Inflationary Depression”. EconomicCrisis.us. EconomicCrisis, 9 May 2011. Web. 12 May 2011.

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