The paper 'Early Causes of the Economic Crises" is a good example of macro and microeconomics coursework. The recent 2007 global financial crisis resulted to direct effects of the immediate economic positions of different countries; developing, underdeveloped and emerging economies all in one accord, in what is now known as the Great Recession. The recession started off as an isolated instability within the United States of America sub-prime housing sector but later extended into a recession that affected the entire globe (Adrian & Shin, 2007). The US instability resulted in major economic shocks in other major economies especially Europe and Asia in 2008 before affecting the entire world economies in 2009.
It is important to understand that in the course of 2008, the immediate effects of this isolated global instability remained underestimated and consequently, compelling leading economic institutions like the IMF and World Bank engage in making a substantial number of alterations for their respective growth forecasts in the period between 2008 and 2009 (Acharya, Philippon, Richardson, & Roubini, 2009). To eliminate the possibility of making great mistakes made by policymakers in the prior crises, governments for developed and developing economies reacted in a much timely fashion by injecting enormous amounts of credit into the financial markets while at the same time nationalizing their banking institutions, reducing interest rates and, also improving on discretionary spending through a fiscal stimulus package.
The aggressive response resulted to a significant reduction in the level of possible damage in many of these countries, however; the effectiveness and efficiency of the policies employed vary greatly in relation to the response and uncertainties of domestic economies (Acharya et al 2009).
The focus of this paper is on identifying the principal causes of the 2007 global economic crisis. Early Causes of the Economic Crises In the period between 2002 and 2007; most of the world economies enjoyed a distinctive boom. However, it is also being ascertained that during this period, these economies overlooked the imminent level of stresses and strains that later affected the overall global labour markets (Crotty, 2009). It is during this period that most economies experienced the substantial level of expansions in employment especially in the developing countries but despite this growth; that were faced with severe real wage growth, overreliance of the informal sector, intensive casualisation of the workforce and increased inequality.
In essence, despite the boom; Acharya and Richardson (2009, p. 198) note that there was a failure to translate the improvements in the economic growth to increased household incomes. For instance, research indicates that in major developing economies like Indonesia and South Africa; real wages in this period did not show any level of possible sustained improvements. Even in consumption-driven markets like the United States of America also experienced redundant growth in real wages.
Unlike the developing economies where the situation resulted to intensive levels of poverty, in the US; households, in fact, engaged in increased consumption activities by way of tapping into their respective wealth especially increase in the household equities that also accompanied ever-rising commodity prices. It is noted that the imminent increase in the consumption resulted to a complete overhaul of the US current account deficit worsening it from 3.9% in 2001 to 6% in 2006 (Foster & Magdoff, 2009).
Adrian, T. and Shin, HS 2007 Liquidity, Monetary Policy and Financial Cycles, Current Issues in Economics and Finance, Federal Reserve Bank of New York, 14(1)
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