The Global Financial Crisis: Causes Of The Global Financial Crisis

Name: Shivashuruti Saravanan

Student No: S10128296K

Topic: Global Financial Crisis

The global financial crisis (GFC) is widely assumed to have originated in July 2007 with the credit crunch when investors in US lost their assurance in the monetary worth of subprime mortgages causing a liquidity crisis. This will eventually cause the US Federal Bank to implant an extensive sum of capital into financial markets. In 2008 September with the collapse of Lehman Brothers a bank, the crisis plunged to further worsen conditions as stock markets around the world disintegrated and became volatile. From Economist’s perspective it was painful but easy to understand that that was too much foreign currency flowing into the US from Asian countries especially

They are the account deficits in the US vice versa account surpluses in the rest of the world and also the absence of efficient risk premiums in the financial sector. After the dot-com bust and September 11 incident, the US Fed eased out on the monetary policy by decreasing interest rates and maintaining them at low levels for an extended period, driving an increase in consumption and investment. In the long run, it will eventually cause the subprime mortgage crisis.

The weak credit markets lowered economic opportunities and a decrease in consumer spending that led to a drop in world trade and industrial production. Nations saw a “harmonized” downturn. Expat oriented economy like Singapore saw large declines and lead to worsening situation such as retrenchment of people and growth in numbers of unemployment.

Singapore was not immune to the impact of the Global Financial Crisis. The local economy was broad down between late 2008 to the start of 2009. Singapore was affected in mainly 3 different ways to my understanding.

1. Banking and Financial

It was crucial to ensure stability of Singapore’s financial Industry and assure market confidence. Monetary Authority of Singapore kept a higher level of liquidity in the banking scene and was on standby to inject additional liquidity. MAS further established a swap facility of 30 US billion Dollars with the Federal Reserve’s US as precautions. So that local banks would still have access to US dollar liquidity.

Singapore also indulged in budget surpluses in the after years of the crisis which allowed it to draw on SGD 4.9 billion of fiscal reserves to spend on a expansionary budget for 2009 to retain a fiscal stimulus package. Furthermore 2009’s budget allowed business to be helped thus retaining workers.

To conclude each country has to draw learning experience from each crisis and plan ahead and look forward. Singapore is fast in doing significant restruction of the global economy. Singapore does acknowledge the obligation to develop its financial industry with the risks and policy challenges still remaining. But Singapore will push forward and make strategic decisions in rule making and offer efficient supervision and work in partnership with the various nations.

References