The Importance of Alan Greenspan’s “Crisis”
In “Crisis”, Alan Greenspan had made an earnest effort to figure out the new emerging economic factors which came to existence as an after effect of the “Cold War”. The book is divided into three parts, the first part deals with the new era of economics, the second part with the role of the United States in the global economy and the third part with the role of China in global economy.
The book starts with a brief introduction about how the global economy has changed over time. The author has mentioned that before 1990, there were two superpowers, the Soviet Union and the United States, which were in a state of Cold War. The fall of Soviet Union in 1991 resulted in the end of Cold War and this gave rise to a new era of globalization. In this new era, countries started to open up their economies and this led to increased trade and investment between different countries. This increased economic integration led to the formation of global financial markets.
The author has argued that the increased economic integration and globalization has led to increased interdependence between different countries. This means that events in one country can have an impact on other countries as well. For example, the subprime mortgage crisis in the United States led to a financial crisis in Europe as well. Similarly, when Lehman Brothers went bankrupt, it had a ripple effect on the global financial system.
The author has also mentioned that in this new era of globalization, there are some countries which have benefited more than others. For example, China has emerged as a major economic power due to its export-oriented economic model. This model has helped China to employed a huge low-cost workforce which has resulted in real GDP growing more than two times of developed countries like United States and Europe.
2. The new era of economics
As mentioned earlier, the fall of Soviet Union in 1991 resulted in the end of Cold War and this gave rise to a new era of globalization. In this new era, countries started to open up their economies and this led to increased trade and investment between different countries. This increased economic integration led to the formation of global financial markets.
According to Greenspan, there are three main factors which have contributed to this increased economic integration: improved communications, lower transportation costs and enhanced technology. Improved communications refers to the fact that it is now easier to communicate with people living in different parts of the world due to advancements in technology. For example, we can now easily make calls or send messages to someone living in another country using our smartphones.
Similarly, transportation costs have also decreased due to advancements in technology. It is now cheaper and easier to transport goods from one country to another due to improved transportation infrastructure and higher efficiency levels. Lastly, technology has also played a major role in reducing trade barriers between different countries. For example, companies can now easily sell their products online without worrying abouttariffs or other trade barriers.
All these factors have contributed to increased economic integration between different countries and this has led to Formation Of Global Financial Markets. For example, we can now easily buy shares of a company listed on a stock exchange located in another country. Similarly, capital flows between different countries have also increased. This means that investors from one country can easily invest their money in another country.
3. The role of the United States in the global economy
The United States is the largest economy in the world and it plays a major role in the global economy. The country has a strong manufacturing base and it is also a major exporter of agricultural products. The United States is also the largest importer of oil in the world.
The country has a highly developed financial system and it is home to some of the largest banks in the world. The United States is also home to the New York Stock Exchange, which is the largest stock exchange in the world. The country has a large number of multinational corporations.
4. The subprime mortgage crisis
The subprime mortgage crisis was a major financial crisis which started in the United States in 2007 and quickly spread to other parts of the world. The crisis was caused by a collapse in the housing market and it led to widespread defaults on mortgages. This led to a loss of confidence in the financial system and this led to a freeze in credit markets.
The crisis started when investors started to default on their subprime mortgages. This led to a decline in house prices and this led to more defaults. As more people defaulted on their mortgages, banks started to foreclose on their homes. This led to even more decline in house prices.
The crisis deepened when Lehman Brothers, one of the largest investment banks in the United States, filed for bankruptcy. This led to a loss of confidence in the financial system and this led to a freeze in credit markets. The crisis had a ripple effect on the global economy as well. For example, many European banks had invested heavily in subprime mortgage-backed securities and when these securities lost their value, these banks were adversely affected.
5. The Lehman Brothers bankruptcy
Lehman Brothers was one of the largest investment banks in the United States and it filed for bankruptcy in 2008. The bankruptcy was caused by heavy losses incurred by the bank on its investments in subprime mortgage-backed securities. When Lehman Brothers filed for bankruptcy, it sent shockwaves through the global financial system.
The bankruptcy led to a loss of confidence in the financial system and this led to a freeze in credit markets. The ripple effect of Lehman Brothers’ bankruptcy was felt across the globe as many European banks had invested heavily in subprime mortgage-backed securities and when these securities lost their value, these banks were adversely affected.
6. The aftermath of the crisis
The global financial crisis had a number of negative consequences for different countries around the world. For example, many countries experienced a sharp decline in economic growth and this led to an increase in unemployment levels. In addition, many countries also experienced an increase in government debt levels as they borrowed money to bail out their failing banks or prop up their economies.
The crisis also highlighted the need for stronger regulation of financial markets. In response to the crisis, many countries introduced stricter regulations on their banking sectors. For example, Basel III is an internationally agreed set of measures which aim to improve the regulation of banks and make them more resilient to shocks. Similarly, Dodd-Frank Act is a set of financial reforms which were introduced in the United States in 2010.
7. Conclusion Greenspan’s “Crisis” is an important book