Fiscal Irresponsibility

Up to that point, large budget deficits were generally only allowed during wartime, but this pattern ended after the Great Depression. Roosevelt’s New Deal meant that the government spent much more than it previously did, even after the economy improved (Budget De... ... middle of paper ... ...“Obama Stokes Deficit Fight.” The Wall Street Journal Politics. The Wall Street Journal, n.d. Web. 6 June 2011. .

To decipher the national debt, one must sum up all the U.S. deficits accumulated throughout the nation’s history, including even the most minuscule amount of surpluses the U.S. had and growing interest on the net borrowing. The result will equal the national debt (Rich). If the United States debt were to be broken up into a pie chart, the largest portion of debt would be owed to the Federal Reserve System commonly known as the Fed, the other portions would be dispersed among foreign governments, private individuals and corporations. The Federal Reserve System is the central banking system of the United States. In response to a chain of financial panic the Fed was created along with The Federal Reserve Act in 1913.

By 2008, due to the failures of large financial institutions, there were severe liquidity problems within the US banking system. When the housing bubble peaked in late 2007 the values of securities linked to U.S. real estate pricing began to plummet (Stiglitz 55). This was a critical hit to financial institutions across the globe. Questions began to arise amongst consumers and members of government alike in regards to the solvency of banks due to poorly performing loans and mortgages, which in turn led to declines in the availability of credit. The complete loss of investor confidence impacted stock markets globally.

The problems arrived over a period of time from 1995 to 2008. The first and main problems that lead to the economic collapse was sub prime mortgages. Sub prime mortgage is a certain kind of loan granted to people with poor credit histories, who which wouldn’t usually be qualified for conventional mortgages (Investopedia). These sup prime mortgages would backfire on banks across the nation resulting in huge financial loses. According to USA Today, “Housing crisis deepens.

The largest and richest world economy belongs to the United States (“North America,” 2011). Interestingly, this same monstrous economy also holds the title for the largest current account deficit. The U.S. current account deficit is funded from net capital inflows from abroad and has continued to grow throughout the last two decades (Holman, 2001). Economists in the early part of this century theorized that this huge U.S. external deficit was sustainable because it would gradually correct itself and in a few short years, the deficit would narrow, but this was not the case (Holman, 2001). The United States, continually fueled by foreign investments, became a net debtor nation.

w14631). National Bureau of Economic Research. United States. Financial Crisis Inquiry Commission. (2011).

The Global Financial crisis In August 2007 at the center of world economy, United States of America, the global financial crisis have begun. It started with credit crunch and liquidity crisis, when “the US sub-prime mortgage defaults began to rise and foreclosures increased.” (Sharma 2013, p.3) Year after the crisis had deepened since a big number of international markets depend on US economy. So, Global financial crisis corresponds for the largest decline in the world economy in our days. (McKibbin and Stoeckel 2009) Consistently, crisis triggered country by country, advanced economies as well as developing have not escaped from the instability in financial systems and business cycles, declines in growth rates, increase in inflation and unemployment. In figure 1, the results of the crisis on some countries are shown.

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 are the root of the recent financial crisis. Portes claims that “the underlying problem in international finance over the past decade has been global imbalances, not greed, poor incentive structures, or weak financial regulation, however egregious and important these may be.” (2).

Introduction In 2008, the world experienced a tremendous financial crisis which is rooted from the U.S housing market. Moreover, it is considered by many economists as one of the worst recessions since the Great Depression in 1930s. After bringing a huge effect on the U.S economy, the financial crisis expanded to Europe and the rest of the world. It ruined economies, crumble financial corporations and impoverished individual lives. For example, the financial crisis has resulted in the collapse of massive financial institutions such as Fannie Mae, Freddie Mac, Lehman Brothers and AIG.

The year of 1929 was the beginning year of a depression that changed America forever. The fall of the New York Stock Exchanged in October of 1929 is what signified the beginning of the economic disaster known as, the Great Depression. During the Great Depression many banks failed, unemployment rates rose, and people lost faith in the economy. (About the Great Depression) A combination of all those things led to the downward spiral of the American economy. During this time people needed someone to look up to for change and guidance, that person was Franklin D. Roosevelt.