Free Economics Essay Sample - Possibility Of Another Financial Crisis And Its Causes

Assignment 4

Assignment 4
The debate focusses on the possibility of another financial crisis and its causes. It is highly likely that the meltdown may be the result of the measures taken in response of the previous crisis experienced a few years ago. The debate also talks about the ability of nations to deal with the expected crisis. Countries may be in a better position to deal with the crisis because of the lessons learned from the previous financial crisis. On the other hand, they may be “brittle and standing on a fault line” ("China 2014 - Forum Debate: Financial Fault Lines," 2014, 45 seconds) such that they will succumb to the effects of the expected financial crisis. I believe that a financial crisis is inevitable in the future due to the frequent use of debt by many countries that result in slow economic development, although it may not happen because of the lessons learnt from the previous crisis.
There will be a financial crisis in the future due to the attributes of the international monetary system ("China 2014 - Forum Debate: Financial Fault Lines," 2014, 4 minutes 36 seconds). The first suggestion from the panel agreed with the rest of the audience indicating that there will be a crisis in the future. The panelist argued that the international monetary system has several weaknesses, both certainties, and uncertainties. The behavior of the financial markets makes it hard for analysts to predict the behavior of the money market in the future (Craigwell, Lorde, & Moore, 2013, p. 2). It has no consistency and the value of the elements being traded fluctuates significantly at times. If the trend continues, then it is then investors face unending risks in a case where the prices may fall and never recover leading to a meltdown on countries that invested heavily in those assets. On the other hand, the international monetary system also creates a certain level of uncertainty because the powerful currencies of the world play a significant role in the performance of the global economy. As such, a decline in their performance results in poor performance of the overall economy of the world. As the powerful economies of the world move towards a state of economic stagnation, a global financial crisis is inevitable because there will be little economic input into world’s economy from these nations (Chin, Wu, & Hsieh, 2013, p. 3).
A global economic crisis is also inevitable due to the large-scale use of debt to deal with the recent global recess. As many nations resolved to the use of debt, there was little economic growth as the borrowed money was used to address the pressing national needs in many countries such as inflation and the escalating rates of unemployment (Canuto & Ghosh, 2013, p. 3). The limited economic growth will result in another growth because most of the global economies will not be able to deal with the population and pressure to generate per capita income for the growing populations
There will be no financial crisis in the future because the past financial crisis was caused by poor policy implementation by the commercial banks, which will not be repeated in the future ("China 2014 - Forum Debate: Financial Fault Lines," 2014, 22 min 5 seconds). Governments were not aware of the policies adopted by financial banks and they ignored the magnitude of the effects that might result from the adoption of the poor policies. However, governments are now aware of the importance of banking policies in the stability of the global economy (Mossfeldt & Österholm, 2011, p. 3). As such, most governments such as India and Brazil prefer to use interest rates to regulate the effects of banks rather national fiscal policy. They also argue that developed markets and emerging markets operate independently, which helps in marinating the economic balance.
In conclusion, there will be a financial crisis due to the international monetary system and the large-scale use of debt. However, it may not happen due to the lessons learnt from the previous crisis.

References

Canuto, O., & Ghosh, S. R. (2013). Dealing with the challenges of macro financial linkages in emerging markets. Washington, DC: World Bank.
Chin, J., Wu, M., & Hsieh, L. (2013). Strategic Planning of Optimal Resource Allocation in Response to Global Financial Crisis – a Study of International Tourist Hotels. Applied Economics.
China 2014 - Forum Debate: Financial Fault Lines. (n.d.). Retrieved from https://www.youtube.com/watch?v=PjCwQrAn4S4
China 2014 - Forum Debate: Financial Fault Lines. (n.d.). Retrieved from https://www.youtube.com/watch?v=PjCwQrAn4S4
Craigwell, R., Lorde, T., & Moore, W. (2013). Fiscal policy and the duration of financial crises. Applied Economics. doi:10.1080/00036846.2011.613769
Mossfeldt, M., & Österholm, P. (2011). The persistent labour-market effects of the financial crisis. Applied Economics Letters. doi:10.1080/13504851003781424