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The global financial crisis and its consequences for the world economy

There have been financial crises before, and in our lifetimes. This one swamps all of those. It can only be compared with 1929, because the level of irresponsible lending that drove the now-bursting bubble has no parallel in history. The financial crisis of 2007–present is a financial crisis triggered by a liquidity shortfall in the United States of America banking system. It has resulted in the collapse of large financial institutions, the “bail out” of banks by national governments and downturns in stockmarkets around the world. It is considered by many economists to be the worst fi nancial crisis since the Great Depression of the 1930s. It contributed to the failure of key businesses, declines in consumer wealth estimated in the trillions of U.S. dollars, substantial financial commitments incurred by governments, and a significant decline in economic activity. Many causes have been proposed, with varying weight assigned by experts. Both market-based and regulatory solutions have been implemented or are under consideration, while signifi cant risks remain for the world economy over the 2010–2011 periods. Although this economic period has at times been referred to as “the Great Recession , ” this same phrase has been used to refer to every recession of the several preceding decades. The collapse of a global housing bubles, which peaked in the U.S. in 2006, caused the values of securities tied to real estate pricing to plummet thereafter, damaging fi nancial institutions globally. Questions regarding bank solvency, declines in credit availability, and damaged investor confidence had an impact on global stock markets, where securities suffered large losses during late 2008 and early 2009. Economies worldwide slowed during this period as credit tightened and international trade declined. Critics argued that credit rating agencies and investors failed to accurately price the risk involved with mortgage-related financial products, and that governments did not adjust their regulatory practices to address 21st century fi nancial markets. Governments and central banks responded with unprecedented fiscal stimulus, monetary policy expansion, and institutional bailouts.

financial crisis, global crisis, recession, great recession

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