The global financial crises

The global financial crises

Introduction

The term pertains to economic crunch that occurred at the very inception of the twenty first century. These financial crises lead the entire globe into serious financial turmoil, and the developed, as well as, the developing countries paid a huge price to combat these crisis. These financial crises took place in the mid 2007 and lasted till 2008 (Matheson, 2013, pp. 3-4). It brought several setbacks to the dynamics of financial management, as well as, led economies and business into collapses. Several financial institutions collapsed, whereas, economies were giving bailouts to huge banks, and the stock markets all across the world were seriously afflicted (Dolazalek, 2011, pp. 65-104).

The context of the topic

The topic pertains to financial turmoil due to collapse of financial dynamics all across the globe. It is defined as “a period of economic crises experienced by markets, consumers, organizations and financial crises”. The rationale behind the financial crisis is often attributed to the liquidity crunch, mismanagement of financial funds, unavailability of investment returns. Financial institutions are the one that are the main victims of such situations, and therefore, these crisis lead to the economic crises in the prevailing situation of a country (Nanto, 2009. Pp. 2-53).

The crises lead to serious unemployment, damage to the investment potential, adverse impact on key industries of the country that include housing, investment, banking, shipping, household industries, real estate, large businesses and oil and gas sector. It leads immense benefit reduction, tax increase and lay-offs. Quality of goods and services manufactured during the financial crises is much lower, small business and entrepreneurship drowns, and the trust of investor is shattered. The economic activity of the country is hindered, and no new economic ventures take place (Gup, 2010, pp. 36-103).

The macro-economics of the topic

The recession causes immense slowdown of the economic activity, the entire business cycle process is hindered, and often suspended. Financial crises affect several macro-economic variables; they are enlisted as under;

GDP (Gross domestic product): the foremost variable affected by the financial crises is the GDP, the total worth of goods and services produced in a country. Financial crises have an extremely adverse effect on GDP, and the total volume of goods and services decrease due to the difficulty in financial management of the corporate resources, as well as, closing down of the businesses.

Employment: the situation of global financial crises encompass of creating a huge turmoil for the corporate sector, and therefore, large number of companies are closed down, whereas, many companies fire a large number of employees because the reduction in operation is optimized through the reduction in human resource.

Investment spending: another variable affected in the macro-economy comprises of investment spending, due to inflation and other situations occurring in the economy at the time of financial crises; people have lesser to save, whereas, the flight of capital shatters the trust of investor in the corporate mechanics of the economy. As a result, less investment flows to the financial ...