Category: Financial Crisis

Kuwait is among the countries that have been affected by the current economic crisis. Most of its sectors are now counting losses as some of them have opted to close down. Kuwaits investment industry has suffered a similar effect but its situation has been worse than in other industries. This is because it depends so much on the financial status to carry out its operations. Investment Dar otherwise known as TID and KMFIC are some of the major investment companies that have suffered losses due to the current crisis and are now relying on their assets to settle their debts and to also pay their employees as they hope that the situation will improve shortly.

Introduction

Kuwaits investment industry is among the sensitive sectors that have been affected by the economic crisis currently prevailing globally. Banks take the largest representation of Kuwaits investment industry and they have cut on their returns since people are not able to invest as before.

However, not all investment companies have suffered negative effects from the economic crisis since some have been found to adjust accordingly by employing competent practices through which they manage risks resulting from the economic crisis. Economics experts in Kuwait have suggested that the appropriate way to protect the value of an investment company during an economic crisis is by investing in long-term sustainability. Among the companies that have been considerably affected are Investment Dar and KMEFIC which is an investment company operating in Kuwait and the whole of Middle East. Roberts (2009 p 12)

An Analysis of the Investment Industry in Kuwait Today

The government of Kuwait has influenced appropriate adjustments in the countrys investment industry where the first steps have been economic regulation through the implementation of monetary policy. This policy involves control of money supply, interest rate, as well as money availability, and its implementation is being carried out by Kuwaits Central Bank. In December the year two thousand and eight, the investment market made some confessions which were a reflection of the extent to which the financial crisis has affected Kuwaits investment industry.

One of the confessions was that the investment authority of Kuwait otherwise known as (KIA) would not be in a position to provide financial support that would assist in the restoration of confidence that was already diminishing in Kuwaits investment industry. Investment banks were also reflected in the confessions and their failure was predicted despite intervention efforts employed by the Kuwait government to support them. Another area that would not be controlled was an investment in oil companies where oil prices had fluctuated to a point that the oil cartel would no longer control it.

After observing the situation in the current financial crisis, most speculators based in Kuwait had a strong belief that companies in the investment industry would suffer greatly though none of them would dare think that the house of Global investment otherwise known as Global would also fall. This would meet Kuwait citizens with shock since its failure would mark the second surprise of the same kind that would be experienced in Kuwait in December.

The first one was the fall of Kuwaits Gulf Bank which is a very significant bank in Kuwaits investment industry. On the sixteen days of December, Global was downgraded by five notches and was placed in the category of C, according to the gauging system employed on Kuwaits investment companies. This downgrading took place because; Global had failed to make payment to another company known as WestLB which had lent it some money. Kuwaits investors were shocked since they had invested so much with Global and it had maintained desirable financial management there before, leaving Kuwait citizens with no doubt that it would survive the financial crisis.

Investment Dar (TID)

The fall of Global had been preceded by TIDs fall which is another significant bank that is highly regarded by Kuwait investors and has an equally great contribution to Kuwaits investment industry and the economy as a whole. The fall of TID was so remarkable to a point that it had difficulties in making payments to its staff which meant that investors were at a greater risk of losing all they had invested with it.

By December twenty-second, the situation at TID had reached its worst when employees of TID staged violent protests as they claimed their salaries and to everyones surprise, those employees had not been paid for some time as their main worry was that their past salaries would go unpaid. It was at this particular time that TID declared that it would not be giving bonuses to its employees since it had difficulties even pay basic salaries. November salaries had been unpaid and since it was the end of December, employees were still waiting for their salaries. By March the year two thousand and nine, which is the current year, TID had suffered losses and it decided to have some assets liquidated to get cash to settle some debts.

A restructuring plan was issued to TIDs creditors where they were requested to liquidate some assets of TID which would take place in the next five years. This practice would not be favorable to the company considering the financial crisis as it would harm the companys value. This is mainly depicted by the value of assets whose liquidation would directly affect shareholders as well as creditors who are directly affiliated to TID.

The restructuring operations of TID indicated that salaries had been cut where employees were given a less amount than before which was accompanied by a failure to give bonuses to employees which were normally given before the financial crisis. Several employees were also laid off since the company could not maintain a large number of staff while expenses on such areas as advertising were cut down. The total amount of these adjustments on the companys expenses was approximately fifty percent which allowed it to operate at very minimal allowances to repay their debts with money that would be collected from liquidation.

The most current information concerning TIDs financial situation is the one reported in Arab Times on the twenty-eighth day of March the year two thousand and nine, where the company was reported of forming a committee that would make arrangements on how contacts with TIDs investors as well as creditors would be coordinated to necessitate the operations of its restructuring plan. The stock exchange has also attacked TID where it has announced a pause on its shares and they have not been involved in trading since April as the company had not presented its reports portraying its earnings on time. Broberts (2009 p 13-15)

Kuwait and Middle East Financial Investment Company (KMEFIC)

This investment company provides services to Kuwait and the whole Middle East region. It mainly concerns itself with the provision of services of investment banking among them being advice on investment to those who would wish to invest individually as well as mergers. KMEFIC also offers services on asset management which involves the management of funds and brokerage services. The companys operations have been quite presentable as it has been depicted in the sale of its shares in the stock market as well as its rise in net profits. However, it has not been spared by the financial crisis that has currently affected the whole world.

Current reports on its financial status portray that its net profits are gradually falling and it is depending on its assets to regulate its operations. Just like the case with TID, KMEFIC is calling upon its creditors to liquidate assets to cover the losses being encountered and also settle some of its debts. The same trend is also evident in the stock market where its price has fallen from one hundred and sixty-two units on tenth May the year two thousand and nine, to one hundred and thirty-two units on twenty-ninth May. This shows that Kuwaits citizens have lost faith in KMEFICs shares since its financial status is not promising as was the case before the financial crisis. Hejleh (2009 p.46)

Conclusion

The global financial crisis has had a great effect on several companies worldwide and Kuwaits companies have not been spared. The main sector that has suffered the greatest effect in Kuwait is the investment industry where investment companies are closing daily due to the high level of losses being incurred. Investment Dar as well as KMFIC are some of the major investment companies that have been contributing a great share of revenue to Kuwaits government.

These two companies have experienced drastic losses in the current state of the economy which is contrary to Kuwait citizens expectations who thought that these companies would survive economic crisis due to their strong foundations. However, this has not been the case since the financial crisis has persisted for quite some time which is beyond the limits that their reserves would sustain them. Khalid (2009 p.8)

References

Broberts D. Article on the investment Dar Company (TID): Arab Media Press 2009 pp. 12-15.

Hejleh w. Kuwait investment authority and the quality of investment: Amazon 2009 pp. 46.

Khalid J. Kuwait investment industry: Arab Times 2009 pp. 8.

Introducton

The financial crisis of 2008 now seems a distant event, especially given the developments surrounding the COVID-19 pandemic. Many of the mistakes made in 2008, experts say, could have been easily avoided, and it already seems evident that the economy has changed so much that it will not allow a repeat of this crisis. The 2008 crisis is a product of its time, an unprecedented housing boom and cash flows from emerging to developed economies. The event was possible due to mistakes made by investors who felt comfortable in the market; the government helped them; COVID-19 and this crisis have reasons and points for comparison.

Primary Triggers

The real estate sector in the 1990s and 2000s was heavily regulated by banks, and managers placed high demands on mortgage borrowers. Initially, banks demanded 20-25% housing fees, a stable job, no gray and black earnings, and a good credit rating (Chen). It demotivated the masses to buy housing, and only people who were confident that they would fit the criteria could afford houses. In the early 2000s, banks cut rates to 10% and lowered job requirements. In 2003, the initial contribution was no longer needed, and banks fell the criteria for professional activity again (Chen). Getting a mortgage has become a reality for migrants, people with unstable incomes, and those who often change jobs. It was the main reason why people started applying for mortgages.

Banks and agencies created a real estate bubble in the market, and reduced criteria forced banks to develop a system of subprime mortgages (they set out the rules in the Community Reinvestment Act). These were loans with special conditions for people who could not get a regular loan (Bartmann). It was the beginning of the crisis; banks played with risks without thinking that borrowers might let them down. Ironically, the Fanny Mae and Freddie Mac agencies were the centers of support for subprime loans, even though they went on to carry some of the worst debt obligations. The state deregulation of financial instruments and the banking sector, initiated by President Reagan, allowed banks to create any conditions for lending.

A high level of development initiated the residential building; a semi-public mortgage agency, was created particular mortgage-backed securities thanks to a system of checks and balances. It seemed that insurance companies would cover the possible risks, and managers decided to create share packages for families. Loans were placed at different conditions and rates (CDO, a new instrument, product). Due to the high level of investment, institutions trusted these securities and shares in the market, and CDS even bought pension funds (Chen). The increased involvement of various financial institutions has led to the lost connection between borrowers and lenders. The bank did not incur any losses if the borrower could not pay the mortgage, so the managers were not afraid to give a loan.

Subprime mortgages forced borrowers to pay each year at a higher rate (floating rate terms), which was impossible for them. For a migrant or person with an unstable income, a rate of 4%, then 7%, and then about 15% is unbearable (Bartmann). The CDO system did not help such people by creating a bond package taxed with something tangible (Bartmann). Bankers and investors helped the CDS, and they were bought for insurance against credit risk. Further problems in the market showed that any movement of bankers and investors towards safekeeping was a sham. None of them imagined real danger and did not protect themselves from real risks. Later, bankers created synthetic CDS funded not by mortgage-backed securities but by swaps. Synthetic tells readers that tangible assets did not back such CDS. It is where investors and banks go from manipulating money to manipulating the air, creating almost fake deals. Investors did not lose motivation, as they received bonuses for selling all their instruments. People began to buy and resell obligations and responsibilities, trying not to keep them for a long time.

Solutions

Random investment in housing-related derivatives caused the real estate bubble to burst. Banks have failed to keep their promise of risk-free operation in pursuit of a lucrative derivatives market; they were only interested in low-risk securities. Nevertheless, people stopped paying their loans repeatedly, and some who still could do it saw the price of the identical houses they owned and considered it irrational to make further payments. More and more bank payments turned into real estate in their full possession, which they could resell for a little less than the previous price. Banks and investors went into a wave of bankruptcies, losing the cash flows that had been spinning for years. Central support for the banks came from the US government, which demonstrated no need to panic (Bartmann). The government pursued a debt repayment policy, despite its seeming absurdity. In this context, politicians have shown that they can take risks for the sake of business development and make concessions to investors.

The direct business support was the Troubled Asset Relief Program (TARP). This program provided many options for helping wealthy banks like Lehman Brothers and insurance agencies (Chen). The government also brought in the Federal Reserve System (FRS) to buy distressed assets. Bank of America was directly involved in purchasing assets as a government trustee. It was essential to restore clarity in the market because it undermined peoples confidence in the financial system and harmed trust between banks and investors. In general, the government has allocated 700 billion to help banks.

Meanwhile, the consequences of the crisis affected the economies of Spain, Italy, Iceland, and the UK, which bought out some companies. The government initiated the creation of temporary funds to help with the repurchase and provision of loans. It was crucial to restoring confidence in banks and insurance, so the Federal Deposit Insurance Corporation participated (Chen). The government planned to raise taxes on citizens to restore the financial system, which President Barack Obama did in 2009.

Lessons

Investors and bankers do not need to feel this increased comfort and confidence in cash flow. In addition, this experience has taught investors and housing agents that home prices will not permanently rise by high amounts. The third lesson is to carefully consider borrowers credit history and consider whether they can repay the debt (Bartmann). The most apparent address is the unreasonably high level of lending.

COVID-19 and the Crisis

Points of comparison between COVID-19 and the 2008 crisis are the freeze on trade, the global collapse, and the size of the countries economies where the events took place. The level of uncertainty and the inability to predict was high in both cases (Chen and Yeh). Many people remember how predictions about a pandemic failed many times and did not come true (Notteboom). In both situations, governments supported industries and banks with special funds.

Conclusion

The financial crisis was due to a series of mistakes by the institutions involved in selling real estate on mortgages. These mistakes were caused by excessive comfort and confidence in cash flows. People who got easy mortgage terms failed to pay it off, leaving banks with real estate but no money; the bubble burst. The banks needed government support, and they got it. Subsequently, they could settle accounts with the state and learn from the crisis. COVID-19 has points of contact with the collapse of 2008, such as the freeze of trade and total support of funds and the state.

Works Cited

Bartmann, Raphael. Causes and Effects of 2008 Financial Crisis. Hochschule Furtwangen, 2017.

Chen, Hsuan-Chi, and Chia-Wei Yeh. Global Financial Crisis and COVID-19: Industrial Reactions. Finance Research Letters, vol. 42, 2021. Crossref, doi:10.1016/j.frl.2021.101940.

Chen, Wenjie, et al. The Global Economic Recovery 10 Years After the 2008 Financial Crisis. International Monetary Fund, 2019.

Notteboom, Theo, et al. Disruptions and Resilience in Global Container Shipping and Ports: The COVID-19 Pandemic Versus the 20082009 Financial Crisis. Maritime Economics & Logistics, vol. 23, no. 2, 2021, pp. 179210. Crossref, doi:10.1057/s41278-020-00180-5.

Introduction

A financial crisis refers to a situation where there is a large loss of value by some financial institutions. Most financial crises are attributable to bank panics or sudden changes in the value of currency making it hard for it to serve its purpose. Many other situations may result in a financial crisis like crashes or crises in the stock markets, and financial bubbles busting among others. Despite the attempt by economists to come up with theories to explain how financial crises come about and how they can be mitigated, financial crises do occur today.

According to Kelley (2010, p. 1), one of the earliest financial crises could be traced back to 1934 in England. This was referred to as the default of England. This was the period around which England was at war with France which lasted for about a hundred years. There have been other crises since the 17th century like the Netherlands crisis of 1637 and the bubble bursting of 1720 in Great Britain and France. These two cases occurred due to the countries assumption of national debts that lead to bubble bursting. They are regarded as the earliest form of the modern financial crisis because of their effects and causes. Many other financial crises have been experienced in the 18th, 19th, and 20th centuries. For example, the panic of 1972, the banking crisis in Australia in 1893, the New York stock exchange crash of 1901 among many others. The Wall Street crash of 1929 ushered in the greatest economic crisis in the 20th century which started in 1929 and continued the to early 1940s. This was referred to as the greatest depression. This was the most severe and longest economic crisis in the 20th Century. It started in the US towards the end of 1929 due to the crash experienced in the US stock market. It then spread to almost all countries in the world.

The objective of this paper is to study the financial crisis beyond 1929-1931.

Types of the financial crisis

According to Bonner & Wiggin (2006, p. 52), there are about four types of financial crises that have been discovered by economists depending on their causes. These include banking crisis, international financial crisis, speculative bubbles, and crashes, and wider economic crisis. A banking crisis is caused by a bank run where depositors withdraw their deposits suddenly from the banks causing banks to become bankrupt. This is because banks have lent out most of the deposits and can not be able to pay back the depositors if they suddenly demand their deposits. If this bank run becomes widespread, the situation is referred to as bank panic. This way banks cause a financial crisis.

Speculative bubbles and crashes occur when a financial asset like stock costs more than the present value of its future cash flows. When marketing participants buy the assets expecting to sell them at a higher price, if all then decide to sell the asset, the asset price crash is likely to occur. The price of the asset may significantly go down. A good example is the Wall Street crash of 1929 commonly referred to the as great crash of the United States. This affected all western countries as it caused an economic crash for ten years.

International financial crises occur because of sovereign default or currency crises. A currency crisis also called the balance of payment crisis occurs when a currency is suddenly devalued after a significant period of the fixed exchange rate. Sovereign default occurs when countries fail to clear their sovereign debt hence curtailing capital inflows and raising capital flight.

Possible causes of the financial crisis

Borrowing to finance investments (leverage) is one of the factors that may cause a financial crisis. When individuals or institutions borrow to finance investments, there is a high risk of bankruptcy involved or likely to occur. If the investment fails, the institution or the individuals are unable to pay their debts causing g the financial institution to go bankrupt. Statistics have it that leverage often precedes financial crisis. For instance, the 1929 Wall Street crash was preceded by people borrowing to invest in stocks. The share prices in the New York stock exchange had experienced growth for some time until on 29th October 1929 when the prices fell significantly and continued to fall for a full month. This day is since then referred to as black Tuesday. Investors lost their money and were unable to pay their debts. The financial institutions became bankrupt causing the financial crisis.

The other cause of the financial crisis is an asset-liability mismatch. This happens when banks loans mismatch the deposits. Banks have current accounts where people can withdraw their money on demand and any time they want. The banks lend out the same money that can be withdrawn at any time. In the event the depositors panic and withdraw their money, the banks may become bankrupt (Bonner & Wiggin 2006, p.23). This is because they may not be able to recover their borrowed money at the same rate withdrawals are made. This results in bank run causing the banks to become bankrupt causing a financial crisis. Deposits are liabilities to banks while loans are assets. In case of a mismatch, there are high risks of the financial crisis occurring.

The third possible cause of the financial crisis is herd behavior and uncertainty associated with the investment. As many analysts have discovered, a financial crisis may happen as a result of illogical investment reasoning. This causes people to make noninformed investment decisions. The emergence of new financial opportunities may cause the investors to have illusionary investment expectations. For instance, the south sea bubble of 1720 was preceded by the emergence of investment in shares which was new and unknown to investors causing them to commit investment mistakes. The other example is the dot com bubble of 2001where people invested in the stock market of the new internet sector. Investments were quite promising but later caused a bubble burst. Herd behavior occurs when in the case of new financial innovations where the first investors make huge gains making more inventors expect the same. For instance, the first investors in the dot com companies made great gains making the succeeding investors buy hopes of such gains. This made the price of the assets higher than their true value. The prices later crashed without further gains assured causing a high rush of sales as investors expected prices to continue decreasing. This caused the prices to fall even further.

Regulatory failures are another possible cause of the financial crisis. These regulations are done by the governments in an attempt to reduce crisis through creating transparency in the financial institutions and to ensure that they are well equipped to honor their financial obligations. The failure of these regulations is believed to be likely to cause the financial crisis. For instance the financial crisis of 2008 is believed to have been caused by failure to regulate risks within the financial system.

The other cause of financial crisis is contagion whereby the crisis in one financial institution causes crises in other institutions. This can be referred to as spill over crisis. It can also occur when the crisis in one economy spills over to another. For instance, Thai crisis in 1997 cause crisis in South Korea through contagion.

Lastly, the other cause is in financial markets where there are strategic complementarities based on the investors generalisation. In the cases where one financial institution crashes, the investors expect that even the others will fall. They therefore withdraw from the financial institutions. For instance, where one bank collapses, the depositors in other banks expect that even the other banks will follow the same trend. This makes them to shun their banks making them to collapse too. This causes financial crisis.

Comparison of the current financial crises (beyond 1929-1931) and others

This section seeks to analyse and compare the financial crises of the period beyond 1929-1931 and those that occurred before.

Reasons for comparison

This comparison is aimed at achieving the following factors:

One of the factors is to establish the causes and the impacts of the financial crises in order to assess common causes and impacts. The other factor is establish the measures that were used to contain the situation in the crisis 1929-1931 and before and see what can be borrowed in the recent crises. This comparison is also aimed at tracking the trend of occurrence of the financial crisis for purposes of forecasting. We shall also establish the mistakes that were made in the past that could have contributed to the current financial crisis. The other objective of this comparison is to establish the key players in both financial crises and find out the common players. The comparison is also aimed at ascertaining the most hit sectors in both cases in order to come up with measures to mitigate the same. The other reason is to establish the repetitive causes of financial crises.

To achieve the above objectives, we shall compare the financial crisis of 2007-2010 to cove the global economic crisis of 2008-2009 and the financial crisis of 1929-1931.

The financial crisis of 1929-1931(the great depression)

This was a world wide financial crisis or economic depression. It occurred during the decade next before the Second World War. It is believed that the great depression started in 1929 and prolonged through late 1930s marking the longest depression in the 20th century (Hall & Ferguson1998, p. 46). It started with the crash of the US stock market buy was later felt in the whole world as it spread in almost all countries. The stock markets were performing very well with price of shares increasing until on the 29th October 1929 when the prices fell drastically. That day was named the black Tuesday. It then spread rapidly in all countries in the world.

This period was characterised by several factors like low purchasing power of personal income. The real income for individuals went down as prices increased. People were unable to buy the commodities they same commodities they could afford before. The tax revenue to the government also reduced because almost all sectors profitability declined. International trade was also hard hit. It dropped by half top two thirds due to low demand of commodities in the export market. The level of unemployment in the US also increased to 25% because companies could not afford to hire more employees. In other countries, the level of unemployment went up to about 33% with companies making losses. Cities that are dependent on heavy industries like construction were also affected heavily as construction was stopped in most nations. Farmers and rural area dwellers also suffered greatly (Kelley 2010, P.1). The prices of crops fell by about 60% making farmers to suffer loss. The most affected were the primary sectors. These include those dealing in cash crops and mining industry in the same category. Most of the countries were on their journey to recovery around 1930s but others felt the pinch until around 1945.

Causes

One on the causes of the great depression is the crash of the stock market in 1929 in the United States. This happened on what is referred to as black Tuesday when the stock market in US crashed causing the stock brokers to lose about $40 billion dollars in profit within two months (Hall & Ferguson 1998, p.34). This caused America to get in to great depression that late spread to almost every country in the world.

The other major cause is massive bank failures in America. Over 9000 banks failed in 1930s following the crash of the stock market. People had borrowed to invest in the stock market which later failed and were unable to repay the loan. This caused many people to lose their savings because the deposits were unsecured. The remaining banks could not give loans for fear of the same crash. This reduced the level of expenditure below the reasonable level.

Another factor was decline in purchasing at all levels. Due to economic unrest following the stock market crash, people reduced the number of items they bought causing a reduction in general production and workforce. People were retrenched and unemployment level rose to 25%. Firms suffered loss and many closed down.

American economic policy with Europe was the third cause. This began with creating smooth-Hawley Tariff in 1930 that imposed high tax on imports in the name of protecting the failing American local industries (Hall & Ferguson1998, p.34). This reduced international trade causing countries relying on exports to suffer big losses. This is how the crisis spread to almost all countries in the world.

The other cause is draught conditions which contributed indirectly to the crisis. There was a great draught in Mississippi valley in around 1930s which made farmers to lose a lot of profit to an extent that they could not settle their bank debts. The tax revenue also decreased greatly since thee farmers could not pay taxes. This contributed to failure of banks.

The financial crisis of 2007-2010

This is the most recent global financial crisis. According to Scaliger (2009, p.1) this crisis was started by liquidity deficit experienced by the banking system in the United States that was caused by several factors. The stock markets around the world performed poorly, most of the financial institutions collapsed as a result of downturns experienced in the stock markets and the reaction of the government by bailing out the banks. This period is characterised by some key factors including the collapse of key businesses, government spending increased greatly, consumer wealth went down by a very big margin and general economic performance dropped. The key players in this crisis are financial institutions like commercial banks, pension funds, hedge funds, investment banks, insurance companies and mortgage companies. Other key players are the financial products like mortgage backed securities, mortgage loans, asset backed securities, credit default swaps and debt obligations with collaterals.

Causes of 2007-2010 financial crisis

This tend started with the decline of the interest rates in US in 2001. The mortgage loans also increased in 2002 causing the prices of houses to rise. The cost of borrowing was very low and the risk on loans was high. In around 2006, risks on loans increased as access was eased and no securities were asked by banks. The US governments had started two mortgage firms, Fannie Mae and Freddie Mac, to increase access on mortgages. They also required no securities.

In 2007, the trend changed. The interest rates went up, the price of homes fell because supply exceeded demand, but with no adjustment made on personal incomes. The credit market also contracted. As a result, people defaults on home loans increased because they were unable to finance them or sell their homes at throw away price due to depreciation Shiller J. 2008. The government mortgage lenders became bankrupt. The mortgage lender in UK called northern Rock could not raise financing and took emergency loan from the bank of England (Scaliger 2009, P. 1).

In 2008, around January, the in6terest rates were lowered in order to ease credit markets. The share price of the two government mortgage firms fell around July 2008. The firms needed to raise more capital but to no avail. The government took control of the two firms around September 2008 in order to mitigate their crisis from hitting the whole economy. The credit market contracted further. The financial institutions like Lehman became bankrupt and government bailed out AIG insurance the same month. In October, the government undertook to bail out the affected financial institutions. Due to continued credit crisis, financial institutions about 2.8 trillion US dollars and most of them collapsed causing the financial crisis.

Comparison

From the discussion above, we learn that, the key players in the two financial crises are almost the same. The financial institutions like the banks, insurance companies et cetera are the key players in the financial crises. The stock markets played big role in both crises.

Both were international phenomenon. We also learn that the US economy plays a big role in world economy. The two financial crises started in the United States and spread to the rest of the world. The decline in the international trade to as US tried to boost the collapsing local companies is one of the ways the crises spread to the rest of the world. The two financial crises were characterised by the same factors like slow economic growth, collapse of key businesses and increased government spending as the government try to bail out the collapsing countries among others. The most hit sector in the 1929-1931 financial crisis are the primary sectors while in 2007-2010 financial crisis, the financial institution are the most hit. The primary sectors are also hard hit in the current financial crisis.

Conclusion

The financial crises of a period beyond 1929-1931 are the modern form of financial crisis. The great depression of 1930s was one of the most severe forms of modern financial crises. The financial institutions are the most key players in the financial crisis. The control of the financial crisis should therefore be looked from these financial institutions. The effects of financial institutions are almost the same.

Reference list

Bonner W. & Wiggin, A., 2006, Empire of debt: the rise of an epic financial crisis. New Jersey: John Wiley and sons, Incl.

Hall E. & Ferguson J., 1998, the great depression: an international disaster of perverse Economic policies. Michigan: University of Michigan

Kelley M. 2010, About.com. American history: top 5 causes of the great depression. New York. The New York times company. Web.

Scaliger C. 2009, the new American magazine: Parallels with the great depression. Web.

Shiller J., 2008, Subprime solution: how todays financial crisis happened and what to Do About it. New Jersey: Princeton university press

The global economic crisis has hit the U.S. with a particular force. It has sharply reduced the volume of production, which led to the breakdown of finances, caused widespread destruction and bankruptcy of industrial, commercial, and financial firms, not to mention mass unemployment. The years of the crisis affected one-fifth of all U.S. banks, every third worker was denied employment. A documentary titled The Men Who Crashed the World-Meltdown talks about the particular reasons for how the process took place.

It began with the actions of reforming the administrative and judicial authorities, issues of economic planning, and legislative regulation of the economy. The land ownership and policies surrounding mortgages were drastically changed and skewed which allowed for greater borrowing and homeownership. People from all walks of life were now given a chance to own a home. But this practice became one of the key reasons for the financial crisis. As the conditions set out in mortgages were very favoring even towards people will low finances, the banks did not care how people will pay for their homes. Even young people and those who were poorly received mortgages. The fact that the uneducated public was the target market adds to the devastations because the loaning companies were using peoples lack of knowledge to take advantage of them. The terms and policies were hidden so that after some time the payments on the mortgage would increase (The Men Who Crashed the World-Meltdown).

Also, as many countries worldwide use banks to store their money, it has been proposed to tax the depositors of such investments. This would help alleviate the financial crisis that has devastated the United States. This was one of the proposed solutions to the crisis, but it has not worked as well as planned. Due to this, there was a decline in shares, which somewhat rebounded but the decrease continued. This also led to the euro lowering its value in comparison to the dollar. There was no major reaction from investors and so, the matter was somewhat paused in order to figure out the best course of action. The American economy would really have benefited if many investors from countries all over the world were attracted to deposit into their banks, but with an increased tax this might damage the plan and reputation of the banks. For those countries with economies that are weaker or developing, this sort of change would divert them from investing and dealing with the United States.

A clear plan of action has not been outlined yet and so, deliberations are in process. It must be done wisely because if everyone is taxed equally, a lot of smaller investors would really suffer. This is why it is noted that the policy changes must address issues individually, as to not greatly affect smaller investors. The parliament has to decide what to do next and it must be careful because any minor decision will be very influential. There is a possibility of investors withdrawing their money from the US banks because in such an unstable time there might be future changes to the tax. The longer this situation takes place, the more of an effect it will have domestically but also, on the global market. This is why all the sides are interested to resolve this matter as quickly as possible. This situation has created a lot of stir globally (McKay 17). It raises questions as to what will follow and how other investments worldwide will be affected. If the United States does what it has planned and investors are taxed, other countries might do the same and change the world market in a major way.

The Occupy movement was another part of the global market change. It started because of an issue that was dominating for some time. The market and economy of the world are run by those in power and with vast resources, so it is understandable why people would be displeased. It was a righteous protest, as it is unfair that 1 percent of the population holds all the wealth while the rest drag behind. The fact that 99 percent of the population has to live on the verge of the middle class or below is unacceptable by any standards. People were demanding better distribution of money and an adjustment of the taxation system. It is a correct policy where taxes are larger for those with greater property and more wealth, while those with fewer resources can be exempt from paying certain fees. Those who want to start their own business, need money for development but they are forced to pay the same amount to the government, as the businesses that are extremely prosperous and make millions of dollars (Occupying Wall Street: The Inside Story of an Action that Changed America 3).

Even though the government is trying to find solutions and quick fixes to the problem, the problem is too great to be resolved in an instant. A social change is needed to make sure that the banks, investors, and organizations change their policies.

Works Cited

McKay, David. American Politics and Society, New York, NY: John Wiley & Sons, 2009. Print.

Occupying Wall Street: The Inside Story of an Action that Changed America, New York, NY: OR Books, 2011. Print.

The Men Who Crashed the World-Meltdown. 2013. Web.

Financial institutions play a pivotal role in shaping the economy of every nation. Nevertheless, their decisions may dip an economy into economic difficulties or turmoil. The activities of financial institutions may also contribute towards improving the performance of an economy. Over the past decade, financial institutions have played a significant role in determining the wellbeing of an economy. One of the major crises that have significantly affected many economies of the world severely was that of 2008. The average level of the global GDP fell significantly.

Various organizations played a pivotal role in this global crisis. Due to the significant role the larger banks play in the market, everyone in the economy suffers whenever they show crisis (Shah Par 50). This crisis began with housing-related asset markets that triggered the devastating crisis of the year 2008 (Council of Economic Advisers 101). Soon after September 2008, the interbank interest rates increased drastically, the exchange rates shifted and the flow of capital across countries came to almost a standstill. The trade was also adversely affected. This led to a swift spread of the crisis to various countries, which led to distress in countries that had initially not faced such financial shocks. Since many economies in the contemporary world have become intensively interconnected, the crisis spread very fast across different countries.

The investment bank is another financial institution that played a significant role in the 2008 crisis. This bank plays a noteworthy role in the capital markets, both equity and bonds market. It also plays a significant role in advising firms on whether to finance themselves with debt or equity.

Recovery

Following the crisis, many financial institutions acted swiftly in order to solve the problem. The policy responses played a significant role in coming up with the upmost effective strategies. One of the strategies that played a pivotal role, in this case, is the monetary policy.

As opposed to other cases where different economies have been applying the concept of beggar-thy-neighbor, this particular crisis was characterized by the coordination of the policies. In order to achieve these goals, many economies used financial institutions to coordinate and communicate their respective measures so as to be in a position to act accordingly (Lane and Ferretti 7).

During this crisis, many financial institutions collapsed. This included the financial institutions in the wealthiest nations. This is one of the factors that forced many governments to act swiftly to come up with the necessary measures to solve the problem.

The International Monetary Fund (IMF) was one of the main institutions that played a major role in solving the global crisis of 1998. Over the past years, the role of IMF has significantly changed where the institution is currently playing a significant role in crises. Although the IMF has no any significant role in regulating countries behavior in normal conditions, the institution plays a significant role in funding various crisis.

One of the major moves that were taken by the IMF was setting up emergency lines of credit in Mexico, Poland, and Colombia (Council of Economic Advisers 102). This amounted to $ 80 billion. The aim of such action was to increase the liquidity in case the investors wanted to get loans for investment purposes. This funding was also intended to signal to the market that funds were available in an effort to maintaining the key players in the market. Through this arrangement, many markets responded positively. The cost of investing in bonds in the countries that got the emergency credit also narrowed significantly.

Another main measure that IMF provided to solve the crisis was providing standby agreements. These arrangements involved 15 countries. In this case, the 165 countries received a total of $ 75 billion that was intended to help them fight the crisis (Council of Economic Advisers 103). This funding was very important to these countries because it helped them to mitigate their liquidity pressure, which was triggered by the crisis. This program played a major role in preventing the large exchange rate swings among these countries.

Another move that was implemented by financial institutions to solve the crisis was a reduction of the interest rates by the central banks. This action was intended to encourage borrowing in order to boost economic activities. During the crisis, trade came to a standstill and so was the rate of economic growth. Therefore, in order to revive the economy, the central bank reduced their interest rates in an effort to trigger the level of borrowing. When the interest rates are low, more people will have an incentive to borrow because they will be more certain about making profits. When people borrow for investment purposes, their income will later increase. This will consequently lead to an increase in the level of disposable income. As the level of disposable income increases, people will increase their spending hence increasing the aggregate spending power. This stimulates economic activities hence stabilizing the economy.

Commercial bank institutions also have a significant role to play as far as the global crisis is concerned. Traditionally, the commercial banks served the business as well as the commerce (Lane and Ferretti 6). They played a pivotal role in meeting the needs of the seekers of small loans, small savers, and buyers; such services can significantly contribute in generating consumption in an economy. This will further contribute in generating economic activities within an economy hence suppressing the effects of the crisis.

The G-20 played a significant role in solving the crisis. It made a significant role in coordinating financial and trade policies in response to the crisis. The G-20 is composed of 19 nations and the European Union. This was composed by some of the most powerful economies in the world. Therefore, this organization made a significant contribution. The members were required to stabilize their financial sectors taking into consideration the then crisis. Leaders in this organization also debated on the major financial reforms that were necessary in order to prevent such an occurrence.

One of the main steps taken by the G-19 was to provide funding for the IMF. G-20 leaders decided to fund multilateral banks with over $800 (Council of Economic Advisers 103). Multilateral financial institutions have a significant role in the current crisis and therefore funding them was a major step in solving the crisis, both in the present and in the future.

Another measure that was taken to solve the problem by the organization was the reforming of international banking and finance. In this case, it was proposed that the liquidity requirements and capital in these institutions be increased in order to prevent such crisis.

In order to increase the ability of the financial institutions to provide loans for the investors, it was decided that the reserves that the banks keep be changed. Through fractional banking, banks are required to have only small reserves against which a loan is given. These arrangements play a significant role in good times. In some cases, it may lead to a crisis.

It has also been argued that the financial structures could be refined by providing incentives, promotion transparency, and eliminating unnecessary competition. Over the past years, the large institutions have been resistant to change, a fact that has led to unhealthy competition. It was proposed that restructuring such arrangements will help in overcoming the crisis in the future.

Conclusion

In conclusion, this discussion has revealed that the period between September 2008 and the end of 2009 presents one of the major challenges in the economy that will ever remain in world history. The crisis led to a devastating fall in the global average level of GDP. The trade was also affected significantly. This led to a significant fall in the level of trade. This crisis led to severe conditions in different countries across the world.

During the crisis, the IMF played a significant role in solving the problem. This crisis has revealed the significance of international coordination in finding the solution to the global crisis. Through international coordination, various nations managed to come up with appropriate measures that led to changes in the financial structures. These measures provided effective remedies that were necessary to mitigate the crisis both in the present and in the future. This has helped in solving the problem of unemployment among other problems at the national level.

References

Council of Economic Advisers (U.S.). Economic Report of the President, Transmitted to the Congress February 2010 Together With the Annual Report of the Council of Economic Advisors. U.S.A.: Government Printing Office, 2010.Print

Lane, Philip, and Ferretti Gian. The Cross-Country Incidence of the Global Crisis. International Monetary Fund; WP/10/171, 2010. Print

Shah, Anup. Global Financial Crisis. Global issues, 2010. Web.

Ray Ball proposes several lessons about market efficiency that people can learn from the global financial crisis. Among the lessons are the limitations to the efficient market hypothesis, which, according to Ball (2009), is silent on the supply side of the information market. This argument means that the theory of efficient market hypothesis does not present the facts such as the quantity of available information and its sources, which could include annual reports or governmental statistical reports. I agree with Balls allegation because the supply side of financial information is uncontrollable. Additionally, the data originating from the supply side is diverse, ranging from highly unreliable to explicitly reliable information. Companies that have smaller market capitalization experience low levels of corporate governance, hampering information quality.

According to Ball (2009), an efficient market hypothesis (EMH) is the interpretation of how stock prices relate to global market information. This theory assumes that security prices already incorporate and demonstrate significant information about the market. Ball (2009) uses three examples to justify this argument. First, he uses the concept of discounted present value, which the efficient market theory emphasizes. This method applies in a variety of contexts, including law, economics, business, accounting, and finance, and it underlies how people perceive the value of income streams. Besides, Ball (2009) states that the present value rule assumes efficient pricing of commodities. Its usefulness still prevails when an individual thinks and calculates the value of assets, liabilities, and a company at large.

The author also uses the legal theory of fraud on the market, which states that actors in an efficient market implicitly depend on stock prices that Ball (2009) assumes to incorporate all public information. I disagree with this theory because organizations play in small and medium ranges under poor governance, supplying insufficient information. The third theory proposes the use of market prices in valuation, especially when calculating net asset values (NAVs). Ball (2009) argues that finance in NAVs relies on the prices of securities that bind the invested funds. This method of valuation is consistent with the efficient market hypothesis theory because it is on the silent-side of liquidity aspects.

It is interesting to note that if financial regulators rely on the efficient market hypothesis. The regulators would portray skepticism of the unusually high returns of the financial crisis if they assume that financial markets are rational and efficient. The basic tenet of EMH is that stocks are always trading at their fair value. This tenet was ignored because regulators did not notice the abnormally high income that large financial institutions reported during the financial crisis. Besides, I disagree with Ball (2009) when he argues about the shape that the distribution of financial securities returns takes. The theory of efficient market hypothesis does not imply a repeat of distribution past return. However, they will recur in the future, and investors should not apply this information to make investment decisions or to develop minimum variance predictions.

Balls (2009) article shows that corporate financial managers should clearly understand the basics of EMH for its appropriate application. As such, the managers should consult this theory when deciding on capital budgeting, raising capital, as well as paying dividends. EMHs application lies on the premise that it is an abstraction that cannot. Balls explanations also imply that the demand side of information is among the weak points of EMH. Hence, the information is unreliable in corporate financial management at all circumstances in the stock market.

Reference

Ball, R. (2009). The global financial crisis and the efficient market hypothesis: what have we learned? Journal of Applied Corporate Finance, 21(4), 8-16.

Summary of the Article

The article So, We Meet Again: The Greek Crisis emphasizes the core issues that the European Union [EU] is considering in determining how to resolve the Greek financial crisis. According to the article, most citizens in the European Union are of the opinion that Greece should exit the EU (The Greek crisis, 2015). However, Greece intends to lobby for support from other EU countries in order to accept a 3-year bailout plan. The article depicts the challenges facing the Greece administration and the EU in reaching consensus on the most appropriate approach to the crisis.

One of the notable problems accentuated in the article relates to the lack of convergence between the political union and the monetary union in the EU. Greece is facing intensive political pressure from other EU member countries to exit the Euro Zone. However, Greeks are in support of the countrys continued stay in the EU. Besides, creditors have imposed harsh terms that Greece must comply with to receive the bailout. Additionally, Greece must undertake some fiscal restructurings like agreeing to fresh collective-bargaining rules and product-market reforms.

What the Article Means and Opinion on the Content

The article underscores the importance of effective interaction between the political and economic systems. Understanding the relationship between the two systems is fundamental to establishing a successful economic integration. In my opinion, the political pressure on Greece to undertake fiscal restructuring is essential in enhancing its access to a bailout by the EU. The restructuring will ensure that the money advanced as the bailout is utilized efficiently, hence stimulating the countrys economic recovery. Additionally, compliance with the terms outlined by creditors will ensure Greeces continued to stay in the EU. Thus, Greece will continue to benefit from the benefits associated with the EUs economic integration.

Analysis

The issues outlined in the article depict the existence of a significant gap in the implementation of economic integration in the EU. The EUs Economic and Monetary Union [EMU] is based on the Maastricht Treaty. The treaty advocates the establishment of a closer union amongst European citizens. The article illustrates a situation whereby most EU members are considering the exit of Greece from the monetary union. This situation might complicate the intended economic benefits of the EMU. Gerhard and Phillip (2014) assert that the success of the European Union depends on the establishment of deep integration at the political and policy level. The political pressure evident in the Greek crisis illustrates the existence of poor government policies amongst the EU member countries. Despite the view that the Independent European Central Bank [ECB] is required to monitor the economic environment in the EU, its effectiveness is hindered by political influence.

The EU countries have not empowered the ECB adequately. Subsequently, its ability to set and adjust the lending rate of interest and maintain consumer price stability is affected negatively. To ensure economic stability in the EU, all the member countries must adhere to the stipulated rules and policies. One of the aspects that governments should consider is the efficient management of public finances. The EU countries should consider adjusting the political and economic policies to foster a high level of economic integration. Moreover, regulatory agencies such as the ECB should implement strict measures to safeguard member countries from soaring debts. This approach will prevent the likelihood of a debt crisis in the future.

References

Gerhard, I., & Phillip, K. (2014). The European Central Bank as lender of last resort. DIW Economic Bulletin, 4(9), 16-28.

The Greek crisis: So we meet again. (2015). The Economist. Web.

Abstract

This report compares the great depression of 1929 with the financial crisis of 2008. The basis of comparison is with respect to outset, causes, effects and nature. The report describes the general factors that are likely to cause financial crisis. It also includes the various forms of financial crises that are likely to be experienced in the economy. These forms of financial crises are mostly the causes of major financial crises in the world.

Introduction

Financial crisis is associated with loss of money value by the financial institutions and financial markets. When there is bank panics for example, currencies lose value and they fail to perform their purpose as medium of exchange. In some situations, crisis in stock markets and bursting of financial bubbles also may cause financial crisis. The lack of stability and proper management of financial institutions and financial markets have contributed to the rise of financial crisis in the world today (Kohn 2003, p.704). He argues that financial markets have evolved over the last couple of years and they are now offering a varied of services. This has made their operations more complex and any mismanagement can result to financial crisis. According to Kohn (2003, p.704) financial markets includes government securities, mortgages, and equity markets among others. The recent financial crisis was attributable to failure of mortgage markets in United States. Mortgage market failure is caused banks to collapse in the United States which contributed to 2008 global financial crisis. As stated by Rochet (2008, P.336), countries have advanced systems to prevent banking crisis but they still do occur causing great financial damage to the global economy. He argued that the main causes of banking crisis are poor regulation and political pressures that encourages bailing out of the failing banks. Bailing out of the financial institutions is very risky and can cause financial crisis like the US 2008 financial crisis. This financial crisis started in US and later turned out to be global

This paper seeks to compare the financial crisis of 1929 and that of 2008. The basis of comparison will be causes, effects, participants and nature. We will first look at general factors that are likely to cause financial crisis, various forms of financial crisis and the objectives or relevance of comparing the financial crisis of 1929 and beyond (2008).

Factors contributing to financial crisis

A close examination of the financial crisis that have occurred in the world helps find out the factors that are likely to cause financial crisis whether global or national. According to Rochet (2008, p.336), political interference in the banking system is the main cause of crisis in the banking system that causes financial crisis. The political authorities have the power to influence banking regulators making them to take unsound actions that are likely to cause financial crisis (Klein, 2001, p.36). For instance, they may mislead banking authorities to bail out failing banks where in real sense the deal will fail. It could be reasonable to allow failing banks to fail instead of bailing them out. This action demeans the credibility of banking authorities as they are forced to take the long step. The financial market discipline is also compromised leading to crisis.

Though political interference was pointed out as the main cause of financial crisis, Rochet (3008, p.336) has other factors like lender of lass resort, poor risk management, and poor regulation of solvency among others. Lender of last resort is exercised by central banks where they extend credit to commercial banks in the event of difficulties like bank run. Credit is extended when it is established that a bank is unable to get credit in other means and that failure to get loan will destabilize the operations of the bank and affect the economy. Central bank in this case acts as the intimate source of credit to these banks. In case banks are unable to pay these loans, they will cause central bank to suffer cash drain and therefore unable to lend to other banks which end up collapsing. Lack of proper solvency regulation is also likely to cause financial crisis as financial institution becomes insolvent and collapses. There are other factors like poor prudential regulations and improper risk management that causes banks to take excessive risks. These risks make them to collapse thus contributing to financial crisis. According to Dewatripont and colleagues (2010, p.160), argues that financial crisis of 2008 was due to poor prudential regulations that limits financial innovation.

Another factor likely to cause financial crisis is borrowing form financial institutions to finance investments. If these investments fail to work, the investors are unable to pay their debts thus causing the financial institutions to collapse. It is proven right that leverage usually precedes financial crisis. A good example is Wall Street crash of 1929 that happened due to people borrowing to invest in stocks whose prices are quite unstable (Klein, 2001, p.34). For instance the drastic fall of share prices in the New York stock exchange in October 1929 caused investors to lose their money. They were therefore unable to repay the debt causing the financial institutions to collapse. Most banks collapse due to having more bank loans than deposits. If in such situations bank customers withdraw their money almost at the same time, banks will suffer cash drain and collapse. This is because withdrawals are made more frequently than loans are recovered (Bonner & Wiggin 2006, p.23). When one bank falls, the investors expect that banks other banks will fall and therefore they withdraw from investing into them. This causes many banks to fall and the effect may spill over to other financial institutions.

Forms of financial crisis

Banking crisis is basically a result of bank run. Bank run happens when the bank deposits are withdrawn suddenly by the customers and at a rate higher than the rate of recovering loans. If this situation persists in the economy, bank panic arise that cause financial crisis. Bonner & Wiggin (2006, p. 52) pointed out four forms of financial crisis that includes, international financial crisis, speculative bubbles and crashes and wider economic crisis. Banking crisis is also a form of financial crisis.

Market forces are responsible for the speculative bubbles and crashes. This happens when assets are held for speculative purposes; that is their prices expected to go up in future but later falls. Investors holding stocks for speculative gain may decide to sell them at the same time causing their prices to go down due to supply exceeding demand. Investors suffer loss. Wall Street bubble burst of 1929 sets a good example in this case (Klingman, 1989, p.39). International crisis occurs due to sudden devaluation of currency or sovereign default.

The relevance of comparing the 1929 great depression and 2008 financial crises

There has been great debate by analysts whether the current financial crisis is similar to the great depression of 1929. There is therefore dire need to compare them in order to understand whether they are similar or not. The relevance of this comparison is to help the analyst device good mechanisms to curb the occurrence of such crisis in future.

The other reason for comparing the two is to analyze the causes of financial crisis. This will also help economists to know the best ways to recover the economies from the crisis. This is by comparing the methods used in 1929 and the ones used today in order to realize the most apt in solving the financial crisis. Comparison will also end the disagreement among the economists about the two crises and get then concentrate in building global economy rather than dwelling much on the debate.

Through this comparison, it will be easier to identify the key players in both financial crises and the sectors of the economy that are mostly affected by the crises.

Comparison between 1929 great depression with 2008 financial crisis

The outset of the two financial crises

The 1929 was the most widespread financial depression that hit almost all economies of the world. It started about a decade before the outbreak of the Second World War (Shachtman, 1979, p.23). It started in 1929 and its effects continued to the late 1930s. The great depression started in United States before it spread to almost the whole world. It is believed that the crisis started with the fall of the US stock market after the price of stock fell greatly on 29^th, October 1929. The day was named black Tuesday because the stocks were performing quite well until that date when their prices fall. Investors lost their wealth that was invested in stocks as they could only sell them at a loss (Peter, 2001, p.28). The prices of commodities increased thus causing the real income of individuals to fall. Their purchasing power also declined with decline in their real income. The demand for exports reduced greatly causing international trade to fall by over 60%. Most companies suffered great loss and were unable to recruit more employees. In the US where the depression started, there was 25% increase in general unemployment level. This was also experienced in other countries where unemployment increased by over 33%. The most hit was the agricultural sector where farmers lost nearly 60% of their profits due to fall in the price of crops.

The 2008 financial crisis also started in the US as a result of insolvency in the banking system. Economists say that the crisis started in 2005 with the busting of the housing bubble in the US that caused many people to default their mortgages. This caused the financial institutions especially banks to collapse. The housing prices were increasing at a high rate thus encouraging investors to take mortgages to build and sell houses. The mortgage rate was low but it begun to rise at around 2007 and price of housing begun to fall. People were unable to finance the mortgage and the value of houses could not repay them because it had fallen. The demand for houses also fell and financial institutions could not sell the houses to recover their money. This made them to collapse and this resulted to financial crisis. The effect spread to the rest of the world though derivatives where US banks started selling the mortgage burden to local and international banks. As a result, the key businesses in the economy collapsed and consumer wealth went down. There was inflation in almost the whole world causing the real income of individuals to go down.

The nature of 1929 and 2008 financial crises

The two are global financial crisis because they were experienced in almost all countries of the world. They started in America and spread to the rest of the world. They both started with the poor performance of the stock markets and other financial institutions. The stock markets in almost all parts of the world felt suffered great loss and lead to poor performance of the economy as whole. Both were global phenomenon and the study cannot be constrained to the United States. The crises started in the United States but spread to the rest of the world through trade and capital flows. The commodity prices also played a role in transmitting the crises to the rest of the world. This is because the commodities were sold to other countries internationally at a high price.

The effects of the crises were also global and similar like decline in industrial production in the whole world and high prices of the product.

Major causes of the crises

It is important here to note the key players in the two financial crises. The crisis of 1929 started with the crash of stock markets in United States that caused investors to suffer great loss. The stock market suffered $14 billion on October 29, 1929 when the crisis started. Within a period of two months the stock market had lost over $40 billion in profit (Shachtman, 1979, p.23). The banking system in US also failed with over 9000 banks collapsing at around 1930s. The fall in the banking system was due to collapse of the stock markets. The investors who had borrowed to buy stocks were unable to pay the loan after the black Tuesday fall in stock prices. The banks collapsed and the bank customers lost their deposits and savings. The level of expenditure declined as credit was limited in the banking system. The purchasing power of people declined and the level of consumption declined. This caused fall in general production and employment level fell by 25% as firms made huge loses and could not hire more employees. To protect local industries, America imposed a high tariff on imports in order to discourage imports. Exporters internationally felt the effect of the crisis through commodity crisis. This is how the crisis spread to the rest of the world.

The trend in 2008 financial crisis also hit the financial markets although it started with the failure of the banking system. The governments resorted in to bailing out collapsing banks but this did not help. The stock markets around the world suffered loses and collapsed. The burst of the housing bubble in US was the main cause of the financial crisis. The US government reduced the mortgage rates in order to encourage people to buy houses. People were taking mortgages at very low interest rates to build houses for sale because the price of housing was very high. The interest rates later fell making it hard for the investors to repay the mortgage. The supply of houses exceeded demand and the price of houses went down. Banks collapsed because they were unable to recover their money. The investors also lost their money and surrendered the houses to banks

The key participants in both financial crises are the stock markets, banks, the commodity markets, individuals and institutional investors and the governments

In 2008 financial crisis, there are other participants like pension funds, hedge funds, investment banks, insurance companies among other financial institutions. There are also financial products mortgage loans, asset backed securities among others.

Comparison with respect to effects

Most of the effects of 1929 great depression are similar to those of 2008 financial crisis. Firstly, the two financial crises resulted to the decline in the performance of the whole economy. The economic growth of many countries slowed down (Krugman, 2009, p.136). It firs started in the United States where the two financial crises started and then the rest of the world. The decline of the performance of the economy was due to the decline in the performance of individual sectors of the economy.

In the two financial crises, there decline in agricultural production and increased food prices (Dewatripont et al, 2010, p.162). This is attributable to poor performance of the economy that contributed to the demand of agricultural products. The international markets were affected and the demand for products declined greatly. Farmers suffered huge losses.

The purchasing power of individuals also declined causing low demand for exports. Economies that rely on exports performed poorly and international trade declined. Countries lost their export gains and most of them had the budget deficit increased. Declined in international trade was also as a result of United States imposing a high tariff on imports in order to boost the growth of local industries. This discouraged imports and the export market declined making exporter to lose a lot of money.

In both financial crises, there was increase in the general unemployment level. According to Dewatripont and colleagues (2010), In the 1929 financial crisis, the level of unemployment increased by 25% in the global economy with some countries experiencing over 33% increase. In the 2008 financial crisis, the level of unemployment increased to about 10.2% globally. This increased the dependency ratio as many people had to rely on the few employed for basic needs. The standard of living for individuals also decreased due to high dependency ratio.

The real GDP for many economies decreased due to decrease in general production level. The US real GDP for both goods and services decreased due to high prices of commodities. The annual decline was estimated at 6% compared to prior periods. The gross international production level also decreased at the same rate as for domestic economies. The other common effect is the collapse of major financial institutions like banks, insurance companies and the stock markets. For instance about 9000 banks collapse during the 1929 financial crisis (Thomas and Morgan, 1979, p.59). There was also collapse of insurance companies during 2008 financial crisis. For instance, AIG insurance company together with some other financial institutions like mortgage firms collapsed. This devastated the global economy and destabilized international, regional and local trade.

Conclusion

The two financial crises, 1929 great depression and 2008 financial crisis were global phenomenon that affected the performance of economies in the entire world. They are similar in many respects like causes, effects and nature among others. The two financial crises were very severe and they affected the global economies severely. The ongoing debate by economists is which of the two financial crises was more severe that the other.

Reference list

Bonner W. & Wiggins A. 2006. Empire of debt: the rise of an epic financial crisis. New Jersey: John Wiley and sons, Incl.

Dewatripont, M., Rochet, J. & Tirole, J. 2010. Balancing the banks: global lessons from The financial crisis. Princeton NJ: Princeton University Press.

Klein M. 2001. Rainbows End: The Crash of 1929. New York: Oxford University Press.

Klingman W. 1989. 1929: The Year of the Great Crash. New York: Harper & Row

Kohn M. 2003. Financial Institutions and Markets (2nd Ed. Oxford: Oxford University Press

Krugman P. 2009. The Return of Depression Economics and the Crisis of 2008. London: W.W. Norton Company Limited

Peter G. 2001. Famous First Bubbles: The Fundamentals of Early Manias. Cambridge: MIT Press

Rochet J. 2008. Why Are There So Many Banking Crises?: The Politics and Policy Of Bank Regulation. Princeton NJ: Princeton University Press

Shachtman, T. 1979. the Day America Crashed. New York: G.P. Putnam

Thomas G. and Morgan W. 1979. the Day the Bubble Burst: A Social History of the Wall Street Crash of 1929. Garden City, NY: Doubleday

Introduction

The financial crisis of 2008 had influenced the well-being and prosperity of many countries in a negative way. Together with the rest of the world, the United States of America experienced the great recession that was considered to be the worst after the Second World War. There have been many debates concerning reasons for the global financial crisis. Nevertheless, there is still no agreement concerning primary causes of the crisis. The financial crisis has been followed by a prolonged recession that resulted in the rapid decrease of employment rates. In the following paper, particular hypotheses concerning the causes of the crisis will be evaluated. Then, the notions from separate readings will be taken into consideration for the achievement of the better understanding of the nature of the crisis and possible solutions.

Hypotheses about the Commencement of Crisis

As it has been already mentioned there is a great variety of suppositions concerning the principal reasons for the crisis. David Colander describes points of view concerning the issue in his book. The central idea of A Manifesto for Economic Sense is that all worlds leading economies believe in and employ the same ideas that were used in the 1930s. The Great Depression was the terrible crash of the US economy that led to the years of high level of unemployment as well as poverty rates.

The financial crisis of 2008 had the same consequences although they occurred in other settings. An irresponsible public borrowing was considered to be the primary reason for the crisis by many policy makers¹. Nevertheless, the author argues, the conditions for crisis were created by excessive private sector borrowing and lending, including over-leveraged banks. The collapse of this bubble led to massive falls in output and thus in tax revenue². David Colander has developed a structural stagnation hypothesis claiming that the reasons for difficulties refer to structural problems connected with globalization.

Robert Kuttner has introduced another hypothesis. In his latest book, The Squandering of Americas Assets, the author wrote that political decisions of the financial elite had not benefited the well-being of citizens³. Jon Wisman presented the same idea. He wrote that the American economic politics was largely predetermined by people in the upperincome brackets⁴.

Reasons for Crisis Endurance

In A Manifesto for Economic Sense Colander explains the reasons for the endurance of crisis via its nature. The primary position of the author refers to the inadequate approaches and reactions. When the housing bubbles collapsed, the private sector aimed to pay debts. The result of massive spending was the aggravation of the crisis. The wrong reaction concerned the emphasis on government deficits and the urge of the public sector to pay its debts.

Such a fiscal policy did not bring required results. In Chapter 11, Colander explains his understanding of causes of the continuation of crisis via structural stagnation. According to the author, both long-term and short-term causes affect the process of recovery. Thus, long-term causes refer to the neglect of globalization-related issues, trade deficit, and exchange rates. Short-term causes concern the immediate consequences of the financial crisis. Finally, Amitai Etzioni considers that financial crisis and its enduring effects have been caused by under regulations of the correlation between the free market and government in both private and public sectors⁵.

The Connection between Inequality and Unemployment

Inequality and unemployment became two the major concerns of the Great Recession. The level of employment decreased drastically and affected all layers of society. Dean Baker and Jared Bernstein have investigated the growing issue of inequality in the American society and found out that it is directly connected with unemployment rates. Recently, there has been a great deal of concern about the shifting of priorities.

Many people have been arguing that the issue of inequality replaces the problem of unemployment that is still rather a challenge. According to Baker and Bernstein, unemployment influences not only people who are without jobs. It affects all labor force. Unemployment decreases the ability of employers to hire people. Consequently, it results in a distorted system of wages. This means that high rates of unemployment have a large impact on the distribution of income, hurting the groups that are already most disadvantaged in society⁶. These most disadvantageous groups are African Americans and Hispanics.

Unemployment rates increased over the last decades. After the WWII and until 1979, the labor market regime was tight. As a result, the level of unemployment was low. In the following decades, labor market became slack, and it led to the decreasing income and the loss of job opportunities for employees. Robert Putnam describes these changes in the American job market and its impact on society from rather a different perspective.

He uses his hometown Port Clinton in Ohio as an example of what has happened to the American dream in the last decades. According to Putnam, working families could belong to the middle-class in 1950. The ability to work on plants was available for everyone and people sometimes preferred going to work instead of going to college. When the labor market regimes shifted, job opportunities reduced drastically. Consequently, people could not earn their livings, and it resulted in the distinct deterioration of the quality of life (drug abuse, poverty, poor living conditions)⁷.

Ending of the Crisis

David Colander suggests that government should employ stabilizing policies for the regulation of spending. It is of primary significance to avoid imposing high taxes on residents of the state. In Chapter 11, the author suggests exact policies to deal with short and long-term structural stagnations. Governments should introduce policies that facilitate the process of recovery such as making procedures of loan restructuring for banks easier. The most important thing for governments is to be able to accept failure. Also, it is necessary to find the balance between the governmental regulations and free market activities. As Friedman wrote, the existence of a free market does not, of course, eliminate the need for government. On the contrary, the government is essential both as a forum for determining the rules for the game and is an umpire to interpret and enforce the rules decided on⁸.

Bibliography

Baker, Dean, and Jared Bernstein. Want to Attack Inequality? Reduce Unemployment. Challenge 57, no. 5 (2014): 6-16. Web.

Colander, David. Economics. New York: McGraw-Hill Education, 2012. Web.

Etzioni, Amitai. A Free Market versus a Regulating Government. Challenge 52, no. 1 (2009): 40-46. Web.

Friedman, Milton. Capitalism and Freedom. Chicago: University of Chicago Press, 1962. Web.

Kuttner, Robert. Challenge. By M.E. Sharpe, Inc. 51.1. 2008. Web.

Putnam, Robert. Crumbling American Dreams. New York Times. Web.

Wisman, Jon. Wage stagnation, rising inequality and the financial crisis of 2008. Cambridge Journal of Economics 37, no. 1 (2013): 921-945. Web.

Footnotes

1. David Colander, Economics (New York: McGraw-Hill Education, 2012), 252. Web.
2. Ibid.
3. Robert Kuttner, interviev by M.E. Sharpe, Inc., Challenge, 51.1, 2008. Web.
4. Jon Wisman, Wage stagnation, rising inequality and the financial crisis of 2008, Cambridge Journal of Economics 37, no. 1 (2013): 939. Web.
5. Amitai Etzioni, A Free Market versus a Regulating Government, Challenge 52, no. 1 (2009): 46. Web.
6. Dean Baker and Jared Bernstein, Want to Attack Inequality? Reduce Unemployment, Challenge 57, no. 5 (2014): 7. Web.
7. Robert Putnam, Crumbling American Dreams, New York Times. Web.
8. Milton Friedman, Capitalism and Freedom (Chicago: University of Chicago Press, 1962), 15. Web.

Introduction

The phrase financial crisis has been applied in wider aspects in recent days with an array of state of affairs in where some financial organisation or assets unexpectedly go down of a large portion of their value. Through around the centuries the civilization has evidenced financial crises coupled with banking panics as well as numerous recessions and the lingering recession would turn into economic depression. An economic downturn durable for several financial quarters or else more is typically denoted as a recession. Post Keynesian economist Minsky, Hyman has presented his theory of financial crisis under an institutional setting of global financial system (Wolfson, Martin H., 6).

Minskys theory of financial crisis argued that comprehensive exclusion of capital controls, noteworthy boost of financial deregulation in domestic markets and the multinational vendors particularly IMF¹ enabled to get involved with durable crises.

At the beginning of the recession in 2007, USA has passed an inflexible economic phase that already has an impact on global economy. This paper requires impact on world economy at post recessionary period by means of a comparison among financial crisis of USA among major countries in the world. Changes in financial markets with the change of financial variables, interest rates, price of financial assets are covered here briefly. In case of major countries here, emphasize on stock market prices and interest rates of Australia, China, Japan and Canada at the beginning of financial crisis of USA in 2007. As the requirement of the paper, here assemble a literature overview and empirical perspective along with relevant graphs.

Literature review

Operate financial activities the country and an organisation need to involve in a number of terms those closely involve in financing. Financial variables, financial assets, interest rates, financial markets, financial institutions are the factors that foster financial movements. A short description of these aspects is presented in bellow-

• Financial variables: Financial variables are the facts that involves in- boom or recession price categories. Risk, return, interest rates, financial assets, financial markets are under financial variables. Each component is interrelated in financial activities.
• Financial assets: Financial assets are also termed as security. Financial assets include- shares, debentures and bonds in terms of financial papers. With the aim of gathering necessary funds, these assets are issued, bought, sold and traded. Leasing is another way of owed these assets. Shareholders are the heart and soul of an organisation and except of them investment in different project could not possible.
• Interest rates: In short, interest is a cost and relation between corporate profit and interest rate is proportional. Lower interest rate brought profit and higher interest rate reduce profit growth. In share market, higher interest rate boosts the stock prices. Another important fact is that increase of interest rates declines reserves. So, all of economic tasks of a country interdependent on interest rate and holds a competitive atmosphere between share and bond market.
• Financial markets: Within last few decades, financial markets enlarge its boundaries and go into the global market. Several tasks are required in managing financial markets- forecasting and planning, decide investing and financing standard, coordinate and control and finally transaction among financial markets. Financial markets are categorized into two forms- developed stock markets and emerging stock markets. United States, Japan, United Kingdom, France, Germany and all developed markets included 31 countries are under develop stock markets. On the other side, China, Korea, Argentina, Brazil and another 78 countries are considered as emerging stock markets.

An overview of financial crisis of USA after 2007

The term recession refers downturn. Recent downturn of US termed two view points- by the economist and by the NBER². The NBER denoted the current depression as recession and on the other hand, economists evaluated this by the fluctuation of monthly GDP (Gross Domestic Product).

At the beginning of recessionary period in 2007, USA faced a tough financial crisis that has an enormous consequence on all economic phase. Other than this, USA had faced recession four times within past thirty years. NBER published a report that recession continues a circle and took place after every eight years and its average lifetime is approximately nine months. At the end of 2007, USA stayed at 50: 50 propositions toward the inside of recession. Within last 12 years, share price valued cheapest regarding as the valuation changed in recession. In the light of economists, potential events go into recession are- interest rates, fluctuation of oil prices, instability of major currencies, changeability of commodities etc.

Speed of the recession either sentimental or go-slow depends on major financial activities and managerial decisions like- employment ratio, investment criteria and impact on funding and spending. Experienced of recent recession the Federal Reserve reduces interest rates and now it is lowest compare to last eight years. Not only in interest rates, recession also devalued US dollar and for this, they need to enlarge exports. In this recessionary period, most of the economic areas are go down from their level but non-housing sector holds a flexible point still now. In September 2008, economic growth was 1.2 % where as their expectation was 1.5% and typical economic growth was 2.2 %. This recession affects on US housing sector most as other areas. For instance, contribution in GDP by housing was 6.2% before recession but now it is hardly (4.4  4.9) percent.

In 2008, fund rate of US Federal Reserve was fall 2% from 4.25% though US economy needs not to depend on consumers in essence. December 2008, employment was increased only by 18,000, which were smallest in the last decade. Consequence of this health circumstances would be questioned next.

In the downturn, involvement in world economy is only 5 percent where as last six years, US contribution in world economy was 10%. In case of export  import US biggest trading partner is Europe and this partnership covered about 22%. With the stepping up of China and the impact of depression most export  import areas are covered by China and partnership ratio of US vs. Europe has decreased. At present, China covered almost 23% of US foreign trade activities and in Canada; this percentage is about 18%.

Effects around the world

• Changes in financial asset prices,
• Changes in Interest rates,
• Changes in financial variables,

Impact of financial crisis on Asia

The threat of the impact of financial crisis on Asia has been spread out among all countries in this continent. Most of the countries insist on the US government to make available a momentous pledge as well as bailout correspondence for the US economy due to it has an incidental effect of encouraging overseas entrepreneurs and assist effortlessness concerns for Asian economy.

India, China and Japan, are seriously affected by US recession, for example, by March 2009, Indias economic growth will have slowed quickly to 7.1%, Chinas growth is expected to slow down to 8%, though Japan has suffered its own crisis from the 1990s but for current crisis its industrial production fell by 10% and car import has reduced 45%.

Some of the analysts of Asia argue that Asia has been significantly isolated from the western financial system and thus the sub-prime mortgage crisis would not suppress the Asian Economy. A number of Asian countries have evidenced speedy development as well as assets creation in most up to date years. But this prediction would be wrong as the western countries have a great deal of investment in Asia. The most Alarming threat is that the Asian country foreign currency reserve has been kept in largely is US dollar. For the political economy of US on the Asian countries at once, do not allow them to covert their foreign currency reserve in gold or euro zone. Thus, they have no rescue package to keep apart themselves from the US credit crush. Some of the Asian leaders have already been addressed for effectual and wide-ranging restructuring of the IMFs financial policy for this region.

Recessionary effect on Gulf Countries

The Gulf Countries like UAE, Kuwait, and Saudi Arabia have also affected by the US financial crisis because the oil price has dropped up to 50%. The Kuwait Times (2008) reported that the NBK³ has determined that the country is going through an inflationary stress. The annual report of Central Bank of Kuwait has mentioned that the CPI⁴ of the country Kuwait has jumped at 10.1% and the domestic interest rate has been cut at least 50 basis points reported on January 23, 2008 and this interest rate shaped 5.75% instate of 6.25% of previous year. In the fiscal year 2007-08 the interest rate for consumers deposit for KD and USD declined 4.507% and 4.646% correspondingly next to 5.013% and 5.209% in 2006-07 and these data may help to understand the whole situation.

Most of the oil producing countries is Non-tax countries where the individuals are not taxed. In these Gulf countries, oil sector has contributed 50% of its GDP share, therefore, the US recession has a greater impact on the macroeconomic factors of these countries for close cooperation and US dollar pegging. However, Saudi Arabia and UAE has already started to contribute US recession by investing in defect fallen banks.

Recessionary Impact on Interest rates & Unemployment

The inflation has been turning faster into dilemma of the looming recession and derived into the way to a pointed turn down in demand as well as economic motion worldwide. The recent global financial crisis is the main cause for unemployment in all over the world, especially industries, banks of UK, USA, UAE, some Asian Countries like China, Japan, India, and few gulf countries like Kuwait. Growing joblessness has turned increased redundancy at the highest of this decade. CNN News (2008) has quoted Alistair Darling the finance minister of UK and added that the country has been passing through the most terrible economic crisis among the past 60 years, which would be deeper and long lasting. In China 20 million, in India 6 million and in UK 8 million employees lost their job. Though to protect this situation US President Barack Obama has passed rescue package and Bush had passed bailout bill but both are unexpectedly failed to solve the problem.

Recessionary impact on Global Stock Market

Treanor, J. (2008) reported that the credit crunch sink its teeth into the stock markets and the stock market already been crouching down. The small retailers have been disparaging and blamed for thrashing the share prices downstairs. The market falling is not a new thing for stock market. Nevertheless, it is flattering more and more contentious in the market downturn. The stock-market customers are buying shares with general prediction that the market would gain its normal values, but the market is going away downwards.

Treanor, J. (2008) also reported that the course of action is very straightforward just a broker borrows some shares from a large metropolis investor those who takes charges for their services. The broker then goes to the market and sells out the shares. Later while the price falls, the broker buy back them more and more and then he is recurring the shares to the equitable vendor. The variation of the two prices would generate his profit.

For instance in March 2008 the share price of HBOS Banking group plunged a disgusting 17% in a same days trade, which has evidenced a dangerous scenario in the history of share market. The retailers have been liable to driving this downwards. The specialists argued that the retailing is not in opposition to the existing rules but the trading influenced by rumors has seriously driven the market downwards. The regulatory authorities like FSA and SEC have steeped to stabilize the market by hunting the notorious traders who were taking the opportunity of false rumors. They scanned the e-mail exchanges and trapped mobile phone records but failed to identify anybody to blame.

Moreover, another reason of market downwards was identified as some of the companies were in huge shortage of emergency cash requirement and carried out an urgent cash call from the market, which affected the market to go downward. At the end of all this investigation, it was founds that the investment banking corporation JP Morgan Stanley was one of the retailer of 2.4% of the HBOS and amounted more or less £350 million. Still the market is unstable and going down wards.

James C., (2008) made comparison of stock market prices and interest rates in the major countries like Australia and China after financial crisis of USA: Compare to recession in 2001, Australia holds a stable place now where as economists forecasts that recession affected the US economy about (40  50)% and there was a strapping chance reach it at 100 percent.

With the effect of GST introduction, Australia has able to avoid recession in December 2000 when their economy was going slow from 5.2% to 1.5%. Compare to recession of 2000, now US share prices are cheapest where as it was overvalued in 2000. In case of interest rates, it was 6.5% in 2000 and now it is 5.25%.

In US economy, recent recession grasp mostly sub-prime components and the housing areas. In short, recession affects a versatile effect on US economy as well as in the world. Modes of financial activities and managerial decision determine the velocity of the current recession.

People cut down their budget of food and gasoline and banks bring down the lending amount. On the topic of recession, fear builds a self-fulfillment impression in peoples mind as well as organisation. On the other hand, present Australian balance sheet is strong than before and their trading commotion mostly depend on China. Trade between Australia and China is now 15% where as it were 7% in 2001 and trade between Australia and US decreased by 4% within last 7 years.

There has an indirect impact of US recession on Australia- they requisite less supply from Australia than before and this enable them spend little. These trading activities between Australia and US greatly affected China and Japanese business. However, now China involved in 16% of US trading operations. Compare to trade in Canada of China and Mexico are respectively- 12 and 11% in total of 18%.

With the speeding up of China and lessening of share prices involvement in global economy of US has decreased by about 20%. Another impact of recession is that- it reduced the USs involvement ratio in global GDP at a lowest form compare to last 60 years. On the other hand, this ratio enlarges at (5  15) percentage with in last 40 years of China especially in last 7 years.

In terms of world economic growth, over last six years US participates 10 percent in terms of 0.5-point percentage. Recent recession down this and other side China is capable to enlarge this percentage into 35 in terms of 1.7 points. This is the consequence of slow down US economy from 2.5% to 1.5% during 2008 represents a versatile impact of recession on global economy.

After conquered the last recession in 2001, at this instant Australias corporate profit is sixteen times higher, unemployment ratio is only 4.5% in terms of 2 points and governments bank loan is lowest than last decade. When Federal Reserve reduced interest rates with the aim of back the image in housing industry and economic growth but in Australia recent interest rate is highest than in last 11 years.

US recession generates an enormous fear in investors mind and in October 2008, share prices fall 9.4 percent and it was the biggest fall of Dow Jones within last five months. Price earning ratio of US share-market dramatically has gone down by 4.85% and now it placed at 15.95% where as it was 20.8 percent over last 13 years. In Australia, share markets hold 15.7 as their long-term average and their price-earning ratio is 14 percent. However, they attain a historical record in November 2008 but it decreased and now ASX 200 is 7.6%.

Conclusion

After the great depression in 1930s, recent recession is threat for around the world. Share price of major countries are affected through this recession. Compare to last recession in 2001 this depression decline the share prices. Boosts of technological development were the prime fact of last recession. In that time, Australia suffered much compare to other major countries. However, in instant most sufferer country because of the recession is United States (US).

Explain the post financial crisis in 2007 of USA, this paper take account of a theoretical overview along with an empirical perspective. An overview of financial crisis, its affect around the world, stock market scenario, recessionary impact comparison among USA and other major countries like Australia, China, Japan and Canada, India has described here briefly. Rumor is another fact that plays behind in declining share prices. Hopefully, USA and other major countries that affected by this recession would overcome successfully very soon.

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Gander P. James, Extreme Value Theory and the Financial Crisis of 2008, Economics Department, University of Utah. Web.

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Wolfson, Martin H. Minskys Theory of Financial Crises in a Global Context, Journal of Economic Issues, Vol. XXXVI No. 2002. Web.

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Footnotes

1. International Monetary Fund.
2. National Bureau of Economic Research.
3. National Bank of Kuwait.
4. Consumer Price Index.