Money and Banking Essay Example | Topics and Well Written Essays - 750 words

Money and Banking - Essay Example This is because the financial crisis has deeper roots. The global credit crunch has been traced by economists and media pundits to be caused by the sub prime mortgage crisis which has disrupted the US financial system, which effect has impacted many of the advanced economies of the world. According to the article, the ‘financialization’ of the US economy by speculative activities in order to hoard capital is the major reason for the global crisis—where the economy has overcapacity of capital but no increase in production in order to back it up. In order to understand it better, the authors have linked first the global financial crisis to the subsequent events that has appeared which may have been the trigger, but not the sole cause of it. While according to the article, this financialization process which is caused by speculation of capital increased the supply of capital in the economy, and not because of faster growth of production may have taken place a couple of decades ago, the trigger has occurred when asset bubbles appeared and the Fed has started ‘to make preemptive attacks.’ The trigger starts back after the 2000 stock market crash. According to the article, there are several policies which aimed to prevent â€Å"economic catastrophes† from happening. When the housing bubble occurred in 2006 at the same time interest rates are increased by Fed in order to regulate inflation, the housing sector as well as mortgage-backed securities faced a meltdown. This has been the start of the chain of events that lead to the global financial crisis. However, according to the authors, Fed’s efforts in order to address the crisis by bailing out several financial institutions will result in the effect that it aims to promote because the problem lies in a much deeper issue. While many economists and media pundits trace back the