Summary of Financial Crisis

Topics: Economics, Debt, Inflation Pages: 3 (963 words) Published: September 8, 2013
A healthy and vibrant economy present that the market is balanced, and people in the market have more opportunity and courage make and investment by using funds from other sources. . Financial crisis shows the bad side of the economy. Basically when a financial crisis occurs, the balance of the market will be broken. As a result, people in the market will lose courage to invest their money, and also there will be fewer opportunities for them to find a option to invest. The author illustrated what the influence that the financial crisis put on the economy is in the article. To begin with, the author indicated that there are two polar camps of the financial crisis. The first one is monetarists, which linked the financial crisis with banking panics. Two economists, Friedman and Schwartz, made a statement that banking panics was a major source of contractions in the money supply, which might be very serious in the economy. Schwartz also came up with the idea of “pseudo financial crises”, which mainly uttered that monetarists do not think the issues occurred in the market are the representative of financial crises. The short sight of monetarists can be associated with the focus of bank panics and the money supply. The second one is outlined by Kindleberger and Minsky who think that financial crisis is all about decreasing in asset prices, failures of both large financial or nonfinancial firms, deflations or disinflations, disruptions in foreign exchange markets, or some combination of all of these. And they also indicated that when the financial crisis appears, justification for government intervention may not be beneficial for the economy. Unfortunately, their theory is not perfect, either. The recently survey made by Gertler provided a theory that when the financial crisis appears, the government intervention cannot be automatically justified. Generally, in a financial transaction, people do not know everything about others. Consequently, this kind of...
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