Credit Crunch and Recent Global Financial Crisis

International Finance 6BUS0226
Lecturer: Arjuna Kanakaratnam
Submission Date: 9th April 2012
Level 6 Business Administration

Zhaoju Liu | 11722622 |

Word Count: 1885

I. Introduction
The global financial crisis brings the whole world negative consequences. According to many scholars, it is the worst economic recession since The Great Depression in 1930s. The world economy confronts meltdown. Numerous enterprises have been affected seriously. So do the global financial markets. This essay is to discuss the reasons and impacts of the crisis as well as demonstrate the government responses. Furthermore, some lessons from the recession will be delivered at the end of the essay. It is very important to make clear of the crisis and integrate the financial theories with practice. II. Discussion
The probable reason of the current financial crisis is recognised as the sub-prime mortgage segment of the USA for which were the results of long times of exceptionally loose monetary policy of some developed economies during the early period of last ten years (Mohan, 2009).
After the internet bubble broken in the US more than ten years ago, most of the developed economies especially the US extremely eased the monetary policy. Only one percent of the Policy Rate had been announced in the summer of 2003 in the US (Mohan, 2009). This policy lasted for a long period and consequently stimulated the housing bubble of the America in the last a few years of 21st Century since it furthered investments and consumptions. The strong demands surpassed the output of the United States and there was an increase of the current account deficits of this country (McKibbin et al, 2009).
The mild monetary policy and the extremely low interest rates stimulated the overconsumptions and to relax the standard of lending. As a result,