Arguably, 2000-2009 was the most difficult moment in the world economy. The financial crisis that took place in United States and the world became the worst financial munch to ever occur in the world. The financial crisis took place in the late 2008 at a remarkably speed, whereby most economic factors were fully disturbed. Mortgage-related securities, which had fully spread in United States as well as global financial systems collapsed. As a matter of fact, this crisis undermined several largest and renowned financial institutions in United states and the world. Additionally, the crisis damaged stronger economies and financial systems in the globe. It is proved globally that capitalism is a flawed structure, which requires government intervention so as to take control of the entire economy, as well as prevent the credit munch. Undeniably, the government had to intervene to save many private companies from collapsing, since it contributes a lot to the economy. The 2008 financial crisis traces its roots to in the real estate economic sectors. The economy is highly affected by the private investment; hence, the government had to get in between to protect them and make the entire scenario look like all was well in the economy. In every economy, financial stability is very crucial, especially in maintaining endurance and adherence to various economic activities, as well as streamlining the policies in the labor market. Moreover, there are several roots of the financial crisis, which include neglect of financial regulation, improper monetary guidelines, as well as global imbalances. In this analysis, it is crucial to elaborate on the root causes of financial crisis in the United States economy. Precisely, many responsible stakeholders took part in correct the financial crisis from escalating further. The stakeholders who came up with these strategies to rescue the United States economy included the Congress, the President, the Chairman of the Federal Reserve, as well as the Secretary of the treasury. Generally, the 2008-2009 financial crisis was caused by the decline in several economic activities, as well as improper policy implementation (Brand, 2009).
Root causes of 2008-2009 crisis
Financial Innovations
Undeniably, many financial institutions in United States were burdened with issues such as mortgage-backed debts. The burden led to decline of conversion in liability to assert fortune. As a matter of fact, this financial firms were rendered incapable of offering credit services. In any economic field, financial institutions focus on making profits from loans they offer to the public and other institutions. Hence, in this case financial innovations were devised to encourage the buying of mortgage-backed credits. This was meant to put banks in a position to lease out money to several businesses so as to make profits. Economically, the impact was devastating to the economy. The interruption that took place on lending took an indirect impact in bringing the wealth of the consumer (Charlie, 2008). The impact in turn, made the consumer spend less, finally leading to the financial crisis. Due to collapse of the housing bubble in America in 2006, it persisted leading to subprime mortgage crisis. In fact, in 2008 the impacts of mortgage crisis were fully felt, whereby it first interfered the United States financial system. Later, the crisis affected the global economy, resulting to a critical liquidity crisis, causing indirect consequences in the globe, such as food crisis, stock collapse, and market stock crisis, overall it led to financial crisis at a global level (Cameron, 2009). Economic analysts assert that credit crisis began in 2007 because of subprime mortgages, which escalated in 2008-2009.
Housing bubble in United States
Since the great depression, United States housing bubble is believed to be the root cause of 2008-2009 financial crisis; this crisis has stretched to all parts of the world. Before the beginning of financial crisis of 2008-2009, the Federal Reserve in United States began to increase the rate of loans offered on housing. Consequently, the increment led to collapse United States institutions, mostly in repayment of awarded credits. The firms operating in the same line were affected globally; hence, global financial firms began to amass liquidity that freeze the markets, which later became a financial crisis in United States (Cameron, 2009)
Easy Credit accessibility
Prior to the financial crisis of 2008-2009 in United States, various lending institutions and banks in the global economies reduced their rates of lending, making it the lowest. Due to lowering of lending rates, many investors decide to borrow excessively. Economically, this is a risky scenario, since it locked out serious investors from borrowing, as well as flooding the market with liquidity. The high circulation of money in the economy affected the value of currency. Every investor could now purchase products that were similar; as the purchasing power of investors increased, the inflation rate began to increase tremendously. For example, persistent increase of prices in this case can be elaborated as an increase in cost of products in the economy over a definite period, in that the purchasing strength of the United States currency was reduced (Brand, 2009). As a matter of fact, the weakening of currency led to a surge in the foreign markets, whereby foreign currency beyond United States boundaries surged, which lowed the rate on assets in the global market. This is the time, whereby the economy experienced some imbalances, and propelling housing bubbles, as well as credits. Generally, easy credit accessibility among investors played an enormous task in the 2008-2009 financial crisis in United States (Gallagher, 2010).
Deregulation
Deregulation is another root cause of 2008-2009 financial crisis. In the year 2004, the Securities and Exchange Commission made tremendous adjustment on the rules and regulation, whereby it gave investment banks a chance to drastically raise their arrears. The deregulation propelled various developments in the sector pertaining mortgage securities. The sector began to flood due to the emergence of brokers in the mortgage industry, who are meant to ascertained those individuals who were eligible to receive loans. Instead of benefiting the mortgage sectors, the brokers took the profits it for their own interest. In the economy, many people made decisions borrow loans that they could not repay, but in turn opted to buy houses so as to mortgage at a profit. As a result, housing market did not prosper as predicted; it declined tremendously leading to default of mortgage repayments. Hence, investors and financial institution suffered many losses, which it later became the core cause for the breakdown of the financial sector of United States (Dayberry, 2008).
Poor monetary policy
In every economy, monetary policies play a huge role in amendable flow of money in the financial system. Monetary policy use polices such as open market operations, lender of last resort, rate of interest, bank ratio, and other strategies to make certain that there is a balance in the financial system. Loose monetary policies may cause an imbalance in the economy. In the year 2001, the Government of United States saved the country from recession but played a big role in the 2008-2009 global financial crisis. The economic growth depends on various nations, which include Great Britain, United States, as well as trade surplus nations such as South Korea, China and Taiwan. The monetary policy used was lowering of interest rates, rendering United States unable to save much GDP (Gross Domestic Product). This was because the consumption, which is a determinant of GDP, was too high, especially when it is compared to nations such as Taiwan, South Korea or China. The surplus nation took the advantage and increased its export, leading to increase of foreign holdings on export. This caused negative imbalances in the United States economy, finally plunging America into a financial crisis (Cameron, 2009).
Generally, the financial Crisis of 2008-2009 in United States and the world had its root causes, which is believed to be global inflation, high food prices, decline in dollar, an imbalance of the housing market, poor monetary policies, deregulation, subprime mortgage issues, and financial innovation. Additionally, the inefficiency of proper rules and regulations in financing agencies is part of the root causes. These root causes are interconnected, since each one of it escalates the effects of the other in the economy (Gallagher, 2010).
Responsibility, the policy opinion and constitutional authority, of the present holders of the key position in United States
The key factors that had an impact in trying to revive the economy included the President, the congress, Secretary of the Treasury, as well as Chairman of the Federal Reserve. The actors changed various policies namely fiscal policy, monetary policy, and laws governing businesses. Global, United States is the most influential superpower, whose move affects many aspects of the globe, namely economic, social, and political.
President
The president has a lot of power as started in the constitution to influence the economy. In fact, the constitution grants the president powers to give directions to the executive on various policies. In times of financial crisis, the public looks on the president to take action. As per barrack Obama, the current president of United States, the restructuring of economic issues calls for combination of several policies, and cooperation of responsible stakeholders. Therefore, the president takes the responsibility of making suggestions to the legislative council on polices meant to bring American economy back to normal (Gallagher, 2010). The policy when implemented facilitates a dynamic and free market, whereby global economies benefit mutually. A fiscal policy entails the use of tax and government spending to regulate the economy. The president is advised on the fiscal policy effects, whereby the presidency advice on which one to be implemented. The policies then allow development of economic security and several commercial innovations that are critical in restoring the United States economy from the financial crisis (Charlie, 2008). For example, the recent presidential advocacy on policies of restructuring helped in restructuring the economy, and recovering fallen industries such as the automobile industry. Obama on his speech asserted that, he would reform the United states tax code, as well as reducing the cost of health care for families. Economically, this will reduce the cost of consumption that is spent, leading to increment of GDP. In addition, the president can also call for the congress to accept the proposals of issues such as medical waive rules and penalties. Hence, president is very important in policymaking, especially on issues of economy (Dayberry, 2008).
Congress
Perhaps, the congress in United States plays a comprehensive task in repairing the economy from the financial crisis. The congress approves and discuss on presidential proposal regarding the restructuring of the economy. In fact, the congress formulates polices that are aimed at ensuring proper and satisfactory performance of investments and financial markets. In fact, their aim is to ensure that the taxpayers are protected on issues such as taxation, pricing, and interest rate. Generally, the congress offers the entire legislative oversight of the economic performance, thus preventing the escalation of financial crisis. In most scenarios, the congress formulates measures to restructure the country from the financial crisis, for example, it recapitalizes various financial bodies in the globe such as International Monetary Fund. In case of imbalance, the congress amends the constitutional issues that affect the economy. The constitutional amendments of finance are carried out because the economic issues fluctuate unpredictably.
Secretary of the Treasury
In fact, secretary of the treasury has a role to in correcting the financial crisis in united States. The secretary of the treasury has the responsibility of giving advice to the president on corrective measures to propose to the congress. In addition, the constitutions grant the Secretary of Treasury powers to advocate and devise various financial, domestic economic, and tax policies. Furthermore, the secretary of congress is among the stakeholders preparing the fiscal policy principles and guidelines meant to repair the economic crisis. The current Secretary of Treasury advocated for policies meant to restructure financial system and mortgage markets. In every economy, policy formulation and implementation is crucial, especially in correcting the imbalances in the economy (Brand, 2009).
Chairman of the Federal Reserve
A monetary policy in United States is linked to the Federal Reserve. The Chairman of the Federal Reserve is very important in repairing the economy financially. The law in United States stipulates that the Chairman of the Federal Reserve has the authority and role to present reports on goal of Federal Reserve as in the monetary policy. The constitution gives the Chairman of the Federal Reserve mandate to put together monetary policies that will maintain stable financial development and economic growth. Generally, the authority of the Chairman of Federal Reserve is very influential in the restructuring process, especially after the financial crisis in the United States economy (Gallagher, 2010).
Preparedly, key factors in the economy have directive measures that are meant to regulate the economy during the financial crisis. The changes in most cases are monetary policy, fiscal policy or laws and regulation meant to govern business during economic relapse. The Federal Reserve pushed for absence of interest rate, especially on financial systems at international level as well as United States divisions including automobile credits, as well as housing loans. Monetary policy during financial reserve is crucial since it is aimed at reducing the money supply in the economy, which in turn decreases the rate of inflation. The president and the congress uses fiscal policy to regulate the economy (Charlie, 2008). The fiscal policy tools used include taxes and public spending. This tools need to be applied correctly to correct the economic imbalances, instead of worsening the financial situation in United States economy. Moreover, changes in United States monetary policy influence the level of credits. Monetary policy to be used during the financial crisis depends on its impacts on the market. Moreover, the president can increase taxes on products, leading to increase in prices, and decrease on the purchasing power of the consumer (Dayberry, 2008). As a government, expansionary fiscal policy may worsen the already existing inflation; hence, it should be applied carefully. The outcomes of fiscal policy are very slow in responding to the situation, in that its effects take long to be understood and reflected.
Policymaking and implementation is crucial in an economy. The policies formulates affect the functioning of the banking systems and other financial institutions. The policies act as the laws and regulations intended to manage businesses. Fiscal policies to be used need to be responsive to the financial situation. Public spending and taxes play a huge role in ensuring that the economy functions well and normally. In an addition, the monetary policies need to be adaptive of the situation, to avoid worsening up of the economy. Generally, the global crisis of 2008-2009 affected United States negatively and many scholars assert its root causes on improper policy application.
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