Financial Crisis In The United States Essay

The Three-Stages Found Within a Financial Crisis for the United States There are three stages occurring in the United States in a financial crisis, which identify as Initiation of Financial Crisis, banking crisis, and Debt Deflation. Initiation of Financial Crisis includes the four negative factors: Deterioration in Financial Institutions? balance sheets, Asset price decline, increase in interest rates, and increase in uncertainty (Miskin & Eakins, 2012). During a credit boom circle, the lending standard is loosen by the financial regulators, hence, several borrowers motivate to invest in residential real estates, commercial projects, and businesses loans. These activities cause the increase demand in real estates, and interest rates increase as well. Consequence, these investment activities also create the uncertainty conditions in the whole economy. Actually, borrowers default on their payments due to high interest rates, and leading to the declining prices of assets. Therefore, large financial institutions absorb major financial losses due to the un-performing loans (Mishkin & Eakins, 2012). Regarding to the banking crisis, is a second stage in a financial crisis, which leads to the decline of assets in balance sheets, and net …show more content…
net worth. Miskin and Eakins (2012) illustrate the stock prices of Dow-Jones Industrial Average in the Great Depression (1928-1939). During this financial downturn, the Dow-Jones had declined almost to 80 percent of its value (from 80 points down to 10 points within 3 years). For a few years later, the Dow-Jones had recovered its price to 40-levels (Miskin & Eakins, 2012). Equally, the 2007-2009 great recession created a greatest financial loss to major financial institution, and a massive decline in asset pricings. Moreover, the Dow-Jones had gave up 50 percent of its price down to 6000