Macroeconomic Factors For The Financial Crisis

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Introduction During the period 2007 to mid-2009, the global economy took a hit by a severe financial crisis. In September 2008, the world’s largest insurance company AIG has collapsed, while Lehman Brothers, one of the most venerable and biggest investment banks, was forced to declare itself bankrupt. The stability of the financial enterprises mainly in Europe and US were in jeopardy. Goldman Sachs, Morgan Stanley, Merrill Lynch were all way down. Both Royal bank of Scotland and Citigroup are now under state ownership. (Valdez & Molyneux, 2010, pp: 263) The recession accelerated and spread globally and many other countries were suffering from financial crisis. For example, as US consumers cut back on spending results Chinese manufacturers’ sales plummeted, and then over 10 million migrant workers in China lose their jobs. (Charles Ferguson, Inside Job) However this crisis was not an accident since nothing comes without consequence, we have to find out the causes of crisis in order to solve problem and prevent a repeat in the future. In this essay, some main factors will be discussed and then evaluate the responses from British government in order to solve problem. Macroeconomic Factors The main macroeconomic factors, which caused this financial crisis, can be summarized as the global financial imbalance and the long period of low real interest rate. (Valdez & Molyneux, 2010, pp: 264) Firstly, the global financial imbalance refers to “large and persistent current account deficits and surpluses that came from capital flows from capital-poor emerging market countries to capital-rich industrial economics ” (Valdez & Molyneux, 2010, pp: 264) The reason was the emerging countries like China and oil-expert nations associated with a high... ... middle of paper ... ...ountry. After its financial crisis started, it spread globally. The macroeconomic factors can be summarized as the global financial imbalance and the long period of low real interest rate. While the macroeconomic factors include five aspects, which are consumers’ false confidence, high levels of corporate leverage, compensation schemes, rating agencies’ distortion and limitation of risk measurement tools and regulation. In the UK, government rescued the economy involves tax cuts, increasing government spending, lower interest rates and injects money supply, etc. however the results was not enough to rescue depressed economy from recession at the begining, since the impact of financial crisis on the global market was extremely. However, after the analysis of financial performance to 2009, now british economy became more stabilized and returned to pre-crisis level.

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