There are several explanations of financial crises in terms of adherents of various economic theories. Keynesian explanation is the lack of money. That time the money was tied to gold reserves that limited the money supply. Production grew and this eventually led to deflation and falling prices, which led to insolvency of many companies, decline the value of their shares and as a result - the collapse of the stock market. Proponents of the monetarist theory associated the stock market crash with such actions of the U.S. government like increasing the money supply, which led to depreciation of assets and the collapse of financial markets. Another reason was the widespread practice of margin trading. The requirements of stock brokers on loans led to a massive sale of shares and their depreciation, lack of bank funds and the stock market collapse (The great crash).
Among the main causes of the 2008 financial crisis are: a high level of prices for raw materials as a result of the planetary inflation, high prices for products, energy and food crisis, the threat of a global recession, “overheating” of the credit market, the mortgage crisis and low interest rates.
Similarities between the Great Depression and the crisis in 2008 lie in their unexpected and global nature: significant destabilization of the global financial system, falling stock markets and massive bank failures. But the nature of causes and consequences of these crises was different. For example, in the 30s the stock market wasn’t regulated by the government and the crisis in 1929 started with panic on the stock exchange. In 2008 all market operations were strictly regulated and the crisis started in the banking system (The great crash).
The US government is still suffering from lingering effect of the crisis. Anti-crisis measures have led to increasing of the U.S. budget deficit and the government debt. The U.S. economy is coming out of recession slower than the government expected. A further strategy of changes in industry and service sectors will require substantial government spending, and it is likely that the government debt will grow (Finocchiaro).
The U.S. has one of the most powerful economies in the world with the most developed financial infrastructure. The dollar is supported by huge financial assets. It is unlikely that those who invest huge funds into the U.S. market would remove them (Wolf). In my opinion there is no economic base for a new financial crisis, but there is a need for a fiscal reform.
Works cited
"The great crash The meaning of Lehman." The Economist. The Economist Newspaper, n.d. Web. 26 Oct. 2013. <http://www.economist.com/blogs/freeexchange/2013/09/great-crash-4?zid=295&ah=0bca374e65f2354d553956ea65f756e0>.
Finocchiaro, Peter. "Debt Ceiling Showdown: Default Threat Shrugged Off By Investors." The Huffington Post. TheHuffingtonPost.com, 14 Oct. 2013. Web. 26 Oct. 2013. <http://www.huffingtonpost.com/2013/10/14/debt-ceiling-default-investors_n_4098557.html?utm_hp_ref=wall-street>.
Wolf, Martin . "The reality of America’s fiscal future." Financial Times. N.p., 22 Oct. 2013. Web. 26 Oct. 2013. <http://www.ft.com/intl/cms/s/0/99a1bd48-3a45-11e3-b234-00144feab7de.html#axzz2ir1hKWJK>.
