The Financial Crisis : The Recession And The Challenge Of Recovery Essay

The Financial Crisis : The Recession And The Challenge Of Recovery Essay

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The Financial Crisis, the Subsequent Recession and the Challenge of Recovery
Inadequate regulation and low-interest rates are regarded as the main causes of the financial crisis of 2008. However, several authors contend that these are surface representations of deeper-lying causes. This paper strives to analyze these hypotheses, uncover why the recession endured and point out the proposals on how to end the crisis.
According to Wisman, the financial crisis occurred due to wage stagnation and the untamed increase in inequality over the preceding three decades (922). The two causes created a fertile ground for the financial crisis to occur. The dynamics that dominated this fertile ground were weak consumer demand, consumption externalities and political decisions that favored the rich who controlled much of the wealth and income. Wage stagnation reduced the consumption of the majority of the Americans limiting their investment forays in the real economy. The wealthy took advantage of this situation by pouring much money in the financial markets and real estate. Newly-created credit instruments in the financial market kept interest rates low that encouraged borrowing that further indebted the majority of Americans (Wisman 922). Secondly, the economic inequality created and continued wage stagnation pushed families to find additional ways to support themselves and relatives. This pursuit pushed families into greater debt, low savings and longer working hours.

Thirdly, the rich controlled much of the income and wealth hence influenced ideology and political decisions. They supported self-serving political decisions such as tax cuts, economic and financial deregulation and weakened safety nets. Elsewhere, Baker and Bernstein propose ...

... middle of paper ... Port Clinton (Putnam 2).
The economic transitions over the years resulted in the financial crisis of 2008. Several hypotheses have been proposed to instrumental in ending the crisis. The financial can be brought to and by decreasing the exchange rate to reduce structural problems. Lowering wages about other countries can also help end the crisis. Imposing tariff on foreign goods and putting in place trade restrictions to address the trade deficits problem. On the domestic front, the crisis can be brought to an end by lowering wages so as to solve structural unemployment. Reducing unemployment insurance is also a hypothesis proposed to be instrumental in bringing the crisis to an end. Lastly, improving training of workers and increasing the countries non-traditional resources such as agriculture are additional policies that can help stem the crisis (Colander 635).

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