International Financial Crisis and Solutions

The present financial crisis is a phenomenon that has hit U.S and the global economy. The global financial crisis has its origins in U.S home mortgage market. The crisis spreads like plague across the globe. Many economies are already at stake and in need of bailouts. This paper will discuss the causes of the international financial crisis, its global impact and prospects for finding better solutions to the menace. The three areas will be the prime focus of this study.

The present financial crisis began in the U.S. around September, 2008. It manifested in various forms but mostly through inadequate liquidity resulting from credit crunch in the U.S financial markets. Results of most studies indicate that the crisis began with the decline of rates of profit in the entire U.S economy. It melted by almost 50 percent, going down from 22 percent to about 12 percent. The crunch of the credit market caused subsequent challenges. These include higher rates of unemployment, inflation, and relative decline in wages paid in the labor industry. This reduced investment rates and reduced economic growth in most economies. The World Bank reports that the current crisis has the potential of pushing 90 million people into extreme poverty levels by 2010 should there be no solutions. This adds to 1.4 billion populations living below the international poverty line by 2005.

There are various solutions aiming at addressing the present financial crisis. These include the need to use the bailout estimated at $700 billion to refinance the mortgages that are already in trouble. Further, the financial markets need calculated and strategic regulation. The budget deficit can be reduced by reducing extravagant U.S military budgetary provisions. Trade deficits can also be addressed by domesticating the offshored production of goods for the local markets. This could reduce trade deficit by a great margin. Sound lending activities, issuance of credit cards regulated by prudent standards are also necessary.

In conclusion, the current global financial crisis has its origins in the U.S although its effects have spread across the globe. Addressing this global problem must thus begin from U.S especially with emphasis on prudent policies on its financial and trade sector policies.