The Global Economic Crisis Of The Middle Of 2007 Essay

1458 Words Oct 18th, 2014 6 Pages
The global economic started in the middle of 2007 and lasted about five years. The crisis was characterized by massive withdrawal of investors from markets as a result of reduced confidence, volatile world stock markets and reduced liquidity for banks which were unable to offer or obtain credits. Some financial institutions were facing the risk of collapse. Governments around the world rushed to save these institutions and cushion their economies from the economic crunch through what were popularly referred to as economic stimulus programs.
Causes of the Financial Crisis
A country’s trade balance as a major depicter of income generation versus domestic consumption. If a country’s imports value exceeds its exports value, it means that the country is ‘living beyond its means’. To make up for the excess spending, the country must borrow funds from abroad. Similarly, if finance investment spending exceeds domestic saving, foreign savings must be spent to fill the deficit. The amount of money a country borrows is representative of the gap between domestic saving and domestic spending. Higgins and Klitgaard (2014) noted that the reliance on borrowed money, as illustrated by the financial crisis, is risky. Major markets like the US and Europe were characterized by a common feature-trade deficits. The existence of cheap loans in the US and Euro nations encouraged increased borrowing. The borrowed funds were mainly invested in the housing and stock markets. In some cases, the cheap…

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