International Production And Governance Essay Example | Topics and Well Written Essays - 1500 words

International Production And Governance - Essay Example As a result, a steady increase got registered in the output of world trade. The above situation presents a similar case to one of the pillar causes of the Financial Crisis of 2008: mortgage lending in the United States of America. According to Murphy (2010), the availability of credit with low rates of interest encouraged people to seek loans. The upward trend in prices of houses further prompted them to invest in houses and homes. This trend, coupled with standards of lending that seemed relaxed encouraged the exploits. As such, when the financial crisis hit, a lot of lending institutions suffered. The genesis of the crisis, as thus, lay in the marketing policies of the mortgage market. The freestyle and casual manner in which the mortgage financing options and paperwork got done exposed the financial markets to high levels of risk. The lowered standards of accessing and the use of the word of mouth in confirming ability to repay the mortgage led to many people buying houses they could not afford (Murphy 2010). As thus, when the financial crunch descended the financiers suffered. This affected the ways in which international governance and production got looked at, in matters financial. The handling of financial affairs got a wake-up call. All the procedures and paperwork got a thorough look up before issuance of not only mortgages and loans, but also other financial transactions. Tangible, and in some cases physical property, got attached as evidence of the ability to repay loans, Murphy (2010). According to Nayyar (2006), the last half of the past century underwent unprecedented expansion and growth in flows, in international trade. World exports experienced astronomical increases, from $61billion in the 1950s to $883billion (1975) and $6338 billion at the turn of the century. Through this epoch, more growth got observed in world trade than in output. This explains the trend that results when the conditions that favor economic

Monetary policy responses by central banks during the early part of Essay

Monetary policy responses by central banks during the early part of the past decade aggravated the recent financial crisis - Essay Example The sub-prime mortgage market in particular was the target of these speculative flows which also made their way into the securities and equities markets as well. It can be said that the monetary policy of the Fed in the early years of the last decade encouraged excessive speculation in the United States economy (Mishkin, 2011, 23). However, to assign blame to the monetary policy of the Fed alone would be to exaggerate its role in the present global financial crisis as the issues of regulation and supervision of â€Å"exotic† financial products was one of the contributing factors as well. However, there is a consensual view which is increasingly being shared by many that at the heart of the reasons for the global imbalances lies the fact that the Fed kept interest rates â€Å"too low for too long† (Taylor,2008,14). This line of thought holds that by keeping the interest rates too low, the Fed encouraged the â€Å"real rate of return† in the US T-Bills or Treasurie s to increase leading to the rest of the world financing the yawning and steadily increasing current account deficit of the US. Further, the fact that these countries (led by Japan and China) were exporting huge amounts of goods and services gave them an incentive to â€Å"recycle† their dollar surpluses back into the US economy. Hence, it can be said that though the monetary policy of the Fed was aimed primarily at a domestic audience, due to the integrated and interconnected nature of the global economy indirectly contributed to the ongoing global financial crisis (BOE, 2010). It should be noted that the overly loose global monetary policy may have contributed to the weakening of the anchor on which â€Å"price stability† rested leading to excessive risk taking and by unleashing a global wave of euphoria contributed to the speculative tendencies in the financial sector. And this was a global phenomenon as well as central banks all over the world took their cue from t he Fed and pursued similar policies which had a cascading effect on the global economy in so far as the lethal combination of excessive liquidity and a lax regulatory structure combined to produce the global financial crises with which the world is even now struggling to cope with (Federal Reserve, 2010). References Blanchard, Dell’Ariccia, and Mauro, OB, G & P, 2010. Rethinking Macroeconomic Policy. IMF, Feb 2010, 1-18. ECB. (2010, April 9), â€Å"Could Monetary Policy have helped prevent the financial crisis?† Available from: http://www.ecb.int/press/key/date/2010/html/sp100409.en.html Mishkin, F, 2011. Monetary Policy Strategy: Lessons from the Crisis. National Bureau of Economic Research, Jan 2011, 1-65. Monetary Policy (2010), (Federal Reserve), Available: http://www.federalreserve.gov/monetarypolicy/default.htm (Accessed: 2011, Mar 14). News Releases (2011), (Federal Reserve), Available: http://www.federalreserve.gov/newsevents/default.htm (Accessed: 2011, Mar 14 ). News Releases (2011), (Bank of England), Available: http://www.bankofengland.co.uk/publications/news/2008/index.htm (Accessed: 2011, Mar 14). Taylor, JBT, 2008. The Financial Crisis and the Policy Responses: An Empirical Analysis of What Went Wrong. Stanford