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1 The Global Financial Crisis Student’s Name Institution Course Name and Number Instructor’s Name Due Date

THE GLOBAL FINANCIAL CRISIS 2 The Global Financial Crisis The 2008–2009 economic and financial crisis, also referred to as the global financial crisis, was widely regarded as the most awful experience. In comparison to the previous episode, however, the adverse production effects in advanced economies were more severe than in most developing regions. The recovery has been more robust in third-world countries. Today, the world should be concerned about whether central banks, regulators, and legislators have enough capacity if the world financial markets experience another crisis similar to the global crisis. The economic crisis is caused by either artificial factors such as a false economy, a crash, or a recession hit, or natural factors such as epidemics and natural disasters. Nevertheless, the introduction of new financial products and other modes of activity, such as globalization, have further complicated the general situation of financial markets. Reliable Predictors of Economic and Financial Crises Few models are truly accurate in identifying economic crisis predictors. Existing models are not great at forecasting, and only a few popular indicators are used across analysis to determine the dots that lead to the economic recession. Besides, what accounts for the crises' disparate consequences in various parts of the globe? Answers to that question are beneficial in forecasting future problems. According to the article “Is it possible to Predict Possible Economic Crisis?” by Maurice Obstfeld, domestic financial downturns and major currency strengthening, foreign reserves, real currency appreciation, and a measure of the production gap are all probable

THE GLOBAL FINANCIAL CRISIS 3 predictors of economic and financial crises ( Obstfeld, 2012). Therefore banks and financial institutions have hard times operating under those conditions. Domestic financial downturns and significant currency strengthening in advanced and developing economies are the most reliable and essential predictors of potential crises. For example, analysts widely blamed market participants, the underachieving economy, and the currency collapse for the Mexican crisis of 1994 to 1995. Higher foreign reserves, markets for sovereigns and currencies are also linked to a lower risk of future problems in the latter group of nations ( Kiley, 2021). Ultimately, in the event of a financial crisis, public debt plays a part. With substantial public debts, a country's economy depreciates due to the increased cash flow in the market. Achievements and Pending Issues in the Context of Global Crisis There are several pending issues and achievements in financial markets regarding the global crises. This includes the window of opportunity for favorable inotropic macroeconomic policies to revive the global economy has narrowed significantly (Kiley, 2021). Secondly, Secondly, due to the relatively high consumption propensity of low-income households, income deflation introduced a downward bias in aggregate demand in both developed and emerging nations. Besides, regulatory authorities cut interest rates to generally small points in reaction to the interbank credit stalemate and the danger of a financial systemic collapse (Torres, 2011). They also provided a lot of assistance to banks, including tax breaks, capital injections, and complete liberalization of failing banks.

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THE GLOBAL FINANCIAL CRISIS 4 Fiscal austerity would have a direct effect on jobs now and in the future, as government debt has risen dramatically, automatically equipoising the decrease in private debt that has occurred since the start of the recession. Many employees work in businesses that profit from reduced working hours and other forms of partial unemployment assistance, which, if discontinued, would result in net job losses. Maintaining elegant social security and programmers to help job search and capability updates is critical for those who are already unemployed. The danger of Economic Crises Today? The cumulative debt of sovereign governments, non-financial companies, and households has increased twice in the ten years since the global financial crisis. According to the update note “A Decade after the Global Financial Crisis: What has (and Has Not) Changed?” by the McKinsey Global Institute, the world should be concerned about whether central banks, regulators, and legislators have enough capacity to cope with a new crisis similar to the one that hit the world in 2008 ( Lund et al., 2018). According to John Macomber, a senior lecturer in Harvard Business School's finance unit, the United States might be on the brink of a house price crash and ensuing financial crisis, this time brought on by the inability to recognize and address environmental degradation ( Harrell, 2020). A giant distortion to the housing prices could negatively impact the financial market concerning Macomber’s concern. Conclusion From the above discussion on the global financial crises in general and subsequent financial challenges, it is valid to conclude that human-made causes, such as a faulty economy, a

THE GLOBAL FINANCIAL CRISIS 5 crash, or a recession, or natural factors, such as epidemics natural disasters, trigger economic crises. Nonetheless, the emergence of new financial products and other modes of operation, such as globalization, have worsened the financial markets' overall situation. Besides, the world is on the verge of experiencing a similar crisis from 2007 to 2009, mainly due to the adverse effects of the COVID-19 pandemic on the world economy. Therefore, the world should be concerned about whether central banks, regulators, and legislators have enough capacity to cope with a new crisis similar to the one that hit the world in 2008.

THE GLOBAL FINANCIAL CRISIS 6 References Harrell, E. (2020, December 18). Are we on the Verge of another financial crisis? Harvard Business Review. https://hbr.org/2020/12/are-we-on-the-verge-of-another-financial-crisis Kiley, M. T. (2021). What macroeconomic conditions lead to financial crises?. Journal of International Money and Finance , 111 , 102316. Lund, S., Manyika, J., Mehta, A., & Goldshtein, D. (2018). A decade after the global financial crisis: What has (and hasn’t) changed. McKinsey&Company Briefing Note September 2018 . Obstfeld, M. (2012). Financial flows, financial crises, and global imbalances. Journal of International Money and Finance , 31 (3), 469-480. Torres, R. (2011). Responding to the global crisis: Achievements and pending issues. The global crisis: Causes, responses, and challenges , 9-20.

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