Impact of financial crysis into international economy Essay

Impact of fiscal crysis into international economy - screen ExampleIn addition, there is a world-wide credit squash that has paralyzed economic growing in the third humanity countries as well as slowing down the economic return range of the developed countries. Furthermore, both the first and third world countries have reported an increase in the rate of unemployment and p overty. There has also been a nosedive in exports, investment and asset markets (Healy and Palepu 13). Therefore, with the aim of studying the impact of financial crisis into international economy this article will outline its causes, consequences and the impact of the credit crunch. CAUSES OF THE spherical FINANCIAL CRISIS (GFC) According to most economists, the current economic crunch is the worst kind of financial crisis that the world has faced so far since the Great Depression of the 1930s (BWND ch. 1).. The root cause of the credit crunch is related to the development of the US lodgment bubble that promptly occurred between 2005 and 2006. This resulted to an increase in the sum of default rates of the adjustable rate mortgages (ARM) and subprime (Calomiris 6-52). This is because the banking institutions were willing and readily gave out loans to investors to purchase real commonwealth property. Investors were encouraged to take to for high loans believing that they would settle them within a improvident time (BWND ch. 3). Investors utilise for loans with ignorance of the interest rates. In fact, investors could easily access a plethora of loans including credit card, mortgage and auto which lured them to apply for the loans without considering the unprecedented load that would be caused by the debt. There were also a myriad of financial agreements including collateralized debt obligations (CDO) and mortgage-backed securities (MBS) which stipulated a more friendly strategy for settling the debt (Salmon ch. 5). This was a marketing strategy that encouraged investors from al l over the world to venture in the US housing market. Moreover, the US federal bureau had monitored the interest rates since 1982 to ensure they were steadily decreasing. The easy access to foreign funds encouraged investors to undertake the loans for fuelling the housing eddy projects (Healy and Palepu 13). Come the year 2007, interest rates increased with an outrageous margin resulting to a decrease in the housing prices. Conversely, most investors were adversely affected since raising money became increasingly difficult. Within a short time there was an increase in the number of foreclosed real estate properties. Also most of the global financial institutions that had invested heavily on the financial agreements incurred huge losses. This led to the erosion of financial strength for banking institutions. As a result there was a worldwide drain of wealth which led to an increase in poverty levels. In addition, there were an increased number of loan defaulters and not only in the housing sector but also in other economic sectors resulting to unbearable losses that cost the human race trillions of dollars (Calomiris 6-52). Another factor that resulted to the growth of the credit crunch is the financialization process. The US credit and housing bubble rapidly expanded the international financial stability until it became fragile and susceptible to a wide array of risks. This is because financial institu