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Financial Crisis

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Submitted By nathanluo
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what has happened, what has changed, what does the future look like to be : chapter 15 from today's viewpoint
Financial Crisis It’s commonly believed that the financial crisis happened during 2008~2009 is one of the most serious financial events in human history. A collapse of the US sub-prime mortgage market and the result of the housing boom in other industrialized economies have had a ripple-effect around the world. Furthermore, the other failures in the global financial system have surfaced. Some financial products and instruments have become so complex and twisted, that as things start to unravel, trust in the whole system started to fail.
All of this comes at a price
From 2006 to 2009, our economic world have been changed. Comparing the activities of 2006 and 2009. first, real GDP was essentially unchanged, making 2006-2009 the worst three-year period science 1946-1948. in spite of an essentially zero increase in production for the 2006-2009 period, personal consumption grew by almost 2 percent. however, private investment fell by more than 30 percent. on the other hand, the banks charged off $27 billion in bad bet for 2006, but this exploded to $191 billion in 2009. personal and business bankruptcies field in federal courts accelerated dramatically over the 2006-2009 period, with personal bankruptcies increasing by 136 percent, while business bankrupts increased by 209 percent.
Since the outbreak of the financial crisis, the American banking system and the whole financial industry's problems have been exposed: many United States financial institutions went bankrupt, especially some big investment banks collapsed, greatly contained the American financial industry in the domestic and international expansion. The U.S government in order to help these financial enterprise, which was on the verge of bankruptcy, also carried on a heavy financial burden. At the end of 2006, U.S Treasury debt stand at the $8.68 trillion, but it grew by 42 precent in three years to reach $12.31 trillion by the end of 2009. This increase in debt of $3.63 trillion casts a shadow over U.S economic future, as the size of this debt escalated from 64.8 to 86.3 percent of GDP. Those burgeoning obligation imposes future economic constraints on our future.
Moreover, the dollar dominant position have been affected. People called for reforming and rebuilding international monetary system. The international status of dollar falling have affected its leading position in the international financial affairs as well as in the world political and economic affairs. The economic weakening of the United States with the growing strength of the developing countries, especially China, already the world's largest exporter, it showed a shift in world power that may result in China's hegemony. of course, the financial crisis can not be the sold cause of a loss of position in world power for the United States, for America's weakening certainly antedates the financial crisis. Nonetheless, time may well prove that the financial crisis and the Great Recession accelerated America's loss of primacy.
American's international economic status decline weakened its "soft power" in the world. The United States financial enterprise, regulatory authorities, capitalist mode and even whole America's reputation have been badly damaged. It caused people feel uncertain about the America's free market system and increased the difficulty in promoting its value in the long term. Countries all over the world questioned whether it was appropriate for United Stated played the role as a global economy and international financial architecture keeper.
The global financial crisis have the great influence on the global geopolitics. The American unilateralism policy suffered severe impact. With the information revolution and the impact of globalization, the world political and economic situation have changed. United Stated, as the world's only superpower country, faced more and more uncontrolled problems. We must strengthen international cooperation to deal with the threats and challenges. At present, international finance and international monetary system stability is very important to us, but US needs other countries's cooperation to ensure its realization.

The $2-2.5 Trillion Bailout
The U.S. Federal Reserve and central banks around the world have taken steps to expand money supplies to avoid the risk of a deflationary spiral, in which lower wages and higher unemployment lead to a self-reinforcing decline in global consumption. In addition, governments have enacted large fiscal stimulus packages, by borrowing and spending to offset the reduction in private sector demand caused by the crisis. The U.S. executed two stimulus packages, totaling nearly $1 trillion during 2008 and 2009. This credit freeze brought the global financial system to the brink of collapse. The response of the USA Federal Reserve, the European Central Bank, and other central banks was immediate and dramatic. During the last quarter of 2008, these central banks purchased US$2.5 trillion of government debt and troubled private assets from banks. This was the largest liquidity injection into the credit market, and the largest monetary policy action, in world history. The governments of European nations and the USA also raised the capital of their national banking systems by $1.5 trillion, by purchasing newly issued preferred stock in their major banks. Governments have also bailed-out a variety of firms as discussed above, incurring large financial obligations. To date, various U.S. government agencies have committed or spent trillions of dollars in loans, asset purchases, guarantees, and direct spending.…...

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