The Global Economic Crisis Essays

660 Words 3 Pages
In the late 2000s, the World suffered from a big global economic crisis which caused “the largest and sharpest drop in global economic activity of the modern era”, in which “most major developed economies find themselves in a deep recession”, according to McKibbin and Stoeckel (1). Because its consequences have a very big impact to the whole world, many economists and scientist have tried to find the causes of the crisis; and some major causes have been emphasized are greed, the defection of the free market system, and the lack of prudent regulation and supervision. This essay will focus on the global imbalances, one of the most important causes of the current economic crisis.
Many researchers have pointed out that the global imbalances
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In general, the developing and developed countries together make a financial ecosystem that when a member problem, the whole system will be collapsed rapidly. McKibbin and Cagliarini gave a good example here:
Rising demands from China (and, to some extent, India), plus a booming world economy saw commodity prices rise across oil, minerals and food from late 2004 to late 2007. The shock to the global economy from this commodity price boom was as big as the first oil shock in the 1970s. (qtd. in McKibbin and Stoeckel 5).
As a consequence, the global imbalances contribute in some potential shocks and structural changes of world’s economy system, because the direction of flows has many affects to the associated exchange-rates and the interest rate behaviors. For example, “the United States on net supplies financial assets and the emerging market countries demand them” (Ferguson et al. 24). Fast growing countries with inability in creating sufficient financial instruments become dependent on the saving instruments from developed country such as America. This was showed as a potential risk in the 1997-8 Asian economic crisis that the crisis contributed to the United States account deficit, reduced the global real interest rates, and boosted the America’s share of assets in global portfolios. The U.S.

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