Essay What Is Economic Crisis?

1478 Words Dec 19th, 2012 6 Pages
The repercussions of the economic crisis are not going to disappear in the short
What is economic crisis? * An economic crisis is A situation in which the economy of a country or countries experiences a sudden downturn brought on by a financial crisis. A financial crisis is a situation when money demand quickly rises relative to money supply. Until a few decades ago, a financial crisis was equivalent to a banking crisis. Today it may also take the form of a currency crisis. Many economists have come up with theories on how a financial crisis develops and how it could be prevented. There is, however, no consensus and financial crises are still a regular phenomenon. A stock market crash is an example of a financial crisis. An economy
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* -Inadequate incentives for banks not to engage in risk taking have led to the consequence of lack of money for any credits, loans or even withdraw of savings. * -Inadequate monitoring by regulators.

How does the economic crisis began: * Well Uncle Sam or the US Government, has a lot of bills to pay, almost 3.8 trillions a year and his income is a little over 2.2 trillions per year, the difference is the deficit and what does he do to have his bills played, he borrows money, when uncle sam takes out a loan he calls it a Bond, Bonds can be held by banks, investors or even foreign government, the US government promises to pay interest on those bonds as everybody has to and when they need to pay those bonds they create new bonds to pay the previous, doing this the bonds and the interest adds up, right now they owe 14 trillion dollars ( same as the national GDP of US). After they rum out of people to buy the bonds they can´t have any more loans so what do they do? they call the federal reserves to produce money, this way dollars are created and deposit in banks all over America the problems is that the more dollars there are the less they buy, there is not that the products are more expensive, its that the dollar worth less, this is called inflation. Now that the dollar is worth less it looks like all the countries that

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