Global Economy and Economic Crisis

First of all, let us try to understand, what the global economy is? Owing to the growth of the international trade in goods and services, capital flows, and development of business relationship between companies, worldwide integration and interdependence is now a fact of life. This is globalization1 of economy.We can be reasonably confident that globalization will characterize the future, generally, because it has already existed.

Economists are tending to view globalization as a positive phenomenon in a long term. However, few of them would argue1 that its short run consequences, particularly for some economic groups, are likely to be extremely painful. Here I would like to underline that if this problem is ignored and little is done about it, the neglect won’t be easy to dispute. Nevertheless, for all of its many problems, globalization is worth pursuing as a way to raise the world’s living standards.

Firstly, the evident prospect is changes of the impact of time and distance factors. The international entrepreneurship, as it is known, is connected with overcoming long distances. Progressive high technologies enable to save considerable amount of time and costs on information transfer, goods transportation and people’s movement. The achievements in the communication sphere, for example, satellites accelerate international interaction and intensify control over them.

Secondly, the fast information exchange regarding new products leads to growth of sales volume in foreign markets. Due to the technical innovations there is an opportunity to build up production in different countries. It means that there will be new working places and unemployment will probably decrease. Besides, as a result of the world market expansion, the quality of goods may increase, but the prices will go down.

In addition to the above said, the important prospect of economic globalization is the global change of competition. Elimination of trade barriers means that there will be a decrease in1 national manufacturing and dominance of transnational production. Thus, small national companies1 won’t be able to survive whereas large ones will have an opportunity to develop globally.

To sum up, these positive prospects will enable to get over the difficulties associated with unequal distribution of wealth.

The current financial crisis has become an earthquake to the world’s economic system. Have started in the USA, it has rapidly overcome the boundaries of the States and has spread over the Europe and Asia, bringing unemployment and financial recession along.

One can hardly say whether it will last long or is going to slump. The following remains obvious, if we don’t want its recurrence in future, we should investigate its root causes now.The world economic system endures times of prosperity as well as followed by inevitable decline.

No one in the world was ready to take the burdens of the economic crisis on the shoulders and to resist its unpredictable consequences, in spite of the fact, almost everybody understood how important it is to examine the reasons of it.There are several important factors to discuss, which obviously have affected the present economic situation.

First of all, it is the spendthrift lending or, in other term, the so-called housing price bubble. Every family buying a house can take a loan from the bank, which should be given back. In order to return money to the bank, the family first of all should take the house it can afford. Otherwise it will not be able to pay the money back.

In the recent years the prices on real estate have been so high and raising so quickly like a bubble. It has resulted in the fact that people started taking loans, which they can’t pay off. Many bank’s borrowers got unable to make their mortgage payments. As a result, the mortgage market was undermined. One of the consequences was the fall of prices on real estate. The institutions and businesses depending on real estate prices or making money on real estate underwent the risk and suffered losses. This process started with the bank system and led to the banking liquidity crisis, affected all financial and economic sectors of business all over the world.

Another reason of the present economic crisis is the unrestricted emission of American dollars. The emission of the most wide-spread world currency was strictly controlled by the government of the USA. Each dollar had gold equivalent in the gold reserve of the state. Purchasing capacity of it corresponded to the quantities of products manufactured. That’s not how things stack any more up today.

As a result, while the USA was losing its positions on the world market, the dollar was weakening in the world.

To sum it up one can say that the root cause of the current economic crisis lie in the ineffective policies of the economic and financial sectors of the leading and developing countries in the world. One should take into account the root causes to oust its re-occurrence in future.

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