What Is Economic Crisis?

Topics: Financial crisis, Financial crisis of 2007–2010, Economics Pages: 4 (1474 words) Published: December 4, 2012
The repercussions of the economic crisis are not going to disappear in the short What is economic crisis?
* An economic crisis is A situation in which the economy of a country or countries experiences a sudden downturn brought on by a financial crisis. A financial crisis is a situation when money demand quickly rises relative to money supply. Until a few decades ago, a financial crisis was equivalent to a banking crisis. Today it may also take the form of a currency crisis. Many economists have come up with theories on how a financial crisis develops and how it could be prevented. There is, however, no consensus and financial crises are still a regular phenomenon. A stock market crash is an example of a financial crisis. An economy facing an economic crisis will most likely experience a falling Gross Domestic Product or GDP, a drying up of liquidity and rising/falling prices due to inflation/deflation. An economic crisis can take the form of a recession or a depression. Also called real economic crisis. Or in shorter words a long-term economic state characterized by unemployment and low prices and low levels of trade and investment.

Introduction to the global economic crisis:
* The global financial crisis, really started to show its effects in the middle of 2007 and into 2008. Around the world stock markets have fallen, large financial institutions have collapsed or been bought out, and governments in even the wealthiest nations have had to come up with rescue packages to bail out their financial systems.

Causes according to experts, in this case the expert is Mr.
Joseph Stiglitz’s, former Chief Economist of the World Bank and university professor at Columbia University. He affirms that the main causes off the current economic crisis are the * -Inadequate capital requirements, which resulted in insufficiently capitalized institutions having an incentive to take excessive risk like the federal reserve or the European central bank, having low...

Bibliography: * http://www.odi.org.uk/publications/2613-effects-global-financial-crisis-developing-countries-emerging-markets-policy-responses-crisis. s.f
* .(http://www.globalissues.org/article/768/global-financial-crisis)
* http://allahcentric.wordpress.com/2010/10/02/tracking-responses-to-the-global-financial-crisis-–-update-saturday-october-2nd/
Well Uncle Sam or the US Government, has a lot of bills to pay, almost 3.8 trillions a year and his income is a little over 2.2 trillions per year, the difference is the deficit and what does he do to have his bills played? He borrows money, when the US Government takes out a loan he calls it a Bond or I.O.U, Bonds can be held by banks, investors or even foreign government, the US government promises to pay interest on those bonds as anybody has to, and when they need to pay the previous bonds and their interest, they create new bonds, doing this, all those bonds and specially all their interest adds up, right now they owe 14 trillion dollars, to put that in perspective that is about the same as the national GDP of US, the total value of all the goods and services produces by the American economy in an entire year. That’s such huge amount of money, that they are running out of people to borrow from, and is having troubles just paying the interest of its loans, the solution would be either cut spending or increase taxes but if you cut spending the people that is expending money on would complain that they don’t have money to expend, and that they were hurting the economy, and if they try to raise taxes, people will have less money to expend. So what the US does? They call the federal reserves to produce money, this way dollars are created and deposit in banks all over America the problem is that the more dollars there are the less they buy, there is not that the products are more expensive, its that the dollar worth less, this is called inflation. Now that the dollar are worth less it looks like all the countries that loaned money to the US are poorer and make look like the US is richer, when a country looks poorer compare to America, $1 American dollar buys a lot of their money so they can pay their workers a few pennies a day, which so low labor cost they can sell their products in America lower than any American manufacturer can the easiest way for American’s companies to compete is to move their factories over seas and pay their workers a few pennies a day too this contributes to a recession. People lose their jobs , stop paying taxes and start collecting government benefits like medicate and unemployment, and the people how still have jobs are desperate to keep them so they work more for the same payment. When your dollars are worth less and you are not earning more that’s calls stagflation.
From the past years the US government could still borrow money in loans but know that is not even enough to pay the interest of their current loans this way Uncle Sam can no longer pay his bills and all the people who where counting with that money are no able to pay their bills either, if investors can´t pay their bills, corporations can´t pay their employees.
If banks can´t pay their bills, nobody is able to take out a loan, use credit or even withdraw their savings.
If foreign governments can´t pay their bills their own banks and corporations will have the same problems, that is called A GLOBAL ECONOMIC COLLAPSE. This had never happened before so now one knows how bad it will be, how long it will last or even how to get out of it.
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