The present paper is a response to the discussion concerning the reasons for the global financial crisis in 2008 – 2009. The central point of the argument is that the real estate market in the US and the policy called “trailer park lending” was the main reason for the worldwide economic crisis (Öniş & Kutlay, 2012). I agree with the statement and understand that one of the major driving forces of the issue was the situation with questionable home lending practices. Recent studies by Hausman and Johnston (2014) and Feldkircher (2014) confirm the matter. However, the lack of economic innovations, pre-crisis credit growth, and the absence of international reserves also contributed to the matter.
First, the innovation deficit leads to an inevitable decline in any country’s economics. According to Hausman and Johnston (2014), the US invested less money into innovation, creating an advanced technology trade deficit in the years before the global financial crisis. The matter led to a failure in adapting to a new reality the economic culture had created, worsening the consequences of the issue.
Second, the macroeconomic picture must be considered to acquire a wider appreciation of the problem. Feldkircher (2014) documented an increase in the borrowings of the private sector during the pre-crisis period and connected the issue with the financial collapse. Countries with increased credit growth and considerable exposure to external funding were affected more severely. Finally, the studies show that the availability of international reserves can mitigate “the harmful effects of financial stress on the real economy, in particular when domestic funding via credit is abundant” (Feldkircher, 2014, p. 1). In conclusion, the real estate market collapsing in the US is one of the main reasons for the global financial crisis outbreak; however, other causes must be considered to acquire a holistic view of the problem.
References
Feldkircher, M. (2014). The determinants of vulnerability to the global financial crisis 2008 to 2009: Credit growth and other sources of risk. Journal of International Money and Finance, 43, 19-49. Web.
Hausman, A., & Johnston, W. (2014). The role of innovation in driving the economy: Lessons from the global financial crisis. Journal of Business Research, 67(1), 2720-2726. Web.
Öniş, Z., & Kutlay, M. (2012). Beyond the global financial crisis: Structural continuities as impediments to a sustainable recovery. All Azimuth: A Journal of Foreign Policy and Peace, 1(1), 10-27. Web.