Financial Crisis Effects on America Essay Example | Topics and Well Written Essays - 1500 words

Financial Crisis Effects on America - Essay Example This essay stresses that the effect of the crisis evolved to a number of countries, and by the mid of 2008, the economic crisis had spread over an appreciated region, worldwide. Many countries with emerging economies felt the influence of the recession that had its manifestation in a number of ways including increased poverty level. Among the countries that experienced a hard hit were the South Africa, Turkey and Mexico. Some like China, however, managed to have a fair time during and after the recession since it records an appreciated rate of economic growth. This paper declares that the recession had emanated from a number of factors and got policymakers and investors unaware. Multilateral agencies and analysts of economic situations underestimated the effect of the financial crisis and the great depression, at the beginning. Signs as the high current deficits, mainly in the United States and United Kingdom, were a clear show that the economy was at under challenge. The lax financial regulation in the United States, coupled with the loose monetary policy experienced were among the different various signs of a financially unstable period. However, after Lehman Brothers experienced a collapse, the situation received attention from policymakers and investors. Investors, for instance, revised their strategies. Noteworthy is the transmission effect of the financial crisis to the country’s real economy. The effect of the real economy on occurs through five notable ways. The wealth effect on the real economy relates to the reduction in n et worth of households. The crisis experienced had considerable effects on the well-being of households in the United States. A significant number of households experienced financial distress because of the reactions to economic stress. The first three quarters of the crisis in 2008 experienced a substantial reduction in asset values for households (Bernanke 2008, p.1). The reduced stock value also reduced the net worth of households. There was a nota reduction in the prices of houses, as well. A significant percentage of households had little value in ownership of stock market holdings. Direct ownership of equities went down to a low record in 2008. Mutual fund holdings reduced and initiated the effect of reduced household net worth. The reduction in prices of stocks triggered a significant hit on households nearing retirement period. The wealth effect also reduced the level of consumption among since there was high need for households to make savings. The need for savings was prom pted by the urge to make up for the reduced value of wealth and maintain the level of life that households had, prior to the crisis. The confidence effect of the economic crisis relates to the implications on the portion of the population that lost wealth and experienced a reduction in asset value. May citizens underwent losses in the stock market. Other people experienced unstable credit ratings while others lost employment. These affected their level of commitment and prompted keenness in consideration of financial commitments. Their confidence level reduced remarkably, as they gained caution regarding the possibility of