The paper "Impact of Global Financial Crisis on the Global Financial System" is an outstanding example of an essay on macro and microeconomics. The global financial crisis (GFC) of 2007-2008 started in July 2007 in the United States and worsened into a full-blown economic crisis in the following months. The crisis climaxed when Lehman Brothers Holding Inc. , a global investment bank, collapsed in September 2008. With the collapse of this bank, the world financial system was nearly brought down. The ensuing crisis caused the destruction of many financial markets, especially in developed countries such as the United States and others in Europe such as the United Kingdom.
Against this background information, the purpose of this essay is to evaluate the impact that the GFC had on the global financial system and how Australian policymakers dealt with the problems presented by the financial crisis. The essay will analyze the effects of the crisis on various countries across the world by looking at both developed and developing countries. On how Australia dealt with the effects of the GFC, the essay will evaluate the measures that were put in place by policymakers in the country to deal with the effects of the crisis. The GFC and its impact on the global financial system A financial crisis or credit crunch, such as the GFC of 2007-2008, arises when there is an unmanageable decline in the supply of wealth and money, with participants in the financial system losing confidence in the system and refusing to fulfill their debt obligation (Gockel, 2010, p.
1). This causes an environment that stifles further creation of credit and causes lenders to ask borrowers to repay their existing loans. It was such occurrences that were unleashed in 2007, whereby investors lost confidence in the value of securitized mortgages as well as default on financial instruments that were highly rated in the US and the UK (Gockel, 2010, p.
1). Consequences of these occurrences spread quickly beyond financial markets in the US and the UK to other developed nations across the world. What commenced in the United States as a mortgage crisis thus developed into a financial and economic crisis affecting the entire world, and which forced the Federal Reserve Bank of the US, the Bank of England (BoE), and the European Central Bank to introduce unprecedented amounts of money into the financial markets to stabilize them (Gockel, 2010, p.
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