Microsoft Office Word 6 Essay

Submitted By duqlan
Words: 4707
Pages: 19

Refer to the article: US Growth Expected Slow amid Looming Stagflation
Write a concise report in which you address the following issues:
1. Examine the cause of the US Economic Crisis in 2008.
In the financial crisis of 2007-2008, also known as the global financial crisis and the financial crisis of 2008, many economists believe that it is the most serious financial crisis since the Great Depression of the nineteen thirties. It threatened to large financial institutions to complete collapse, the bank bailout by the national government, and in the world of stock market decline. In many areas, the housing market also suffered, in the eviction process, foreclosures and long-term unemployment. The crisis has played an important role, failure of the key business, consumer wealth loss estimation in trillions of dollars, and economic activity will be subdued, resulting in 2008 to 2012 of the global economic recession and Europe's sovereign debt crisis. The crisis in the process, appeared as a liquidity crisis, can be traced back to August 7, 2007, the French Paris bank three hedge funds terminate quoted " liquidity to complete evaporation of " active period.
In 2008 the United States economy experienced the worst financial crisis since the great depression. The financial crisis started in the market of housing mortgage loan, especially the so-called “secondary " mortgages, and spread into a loan, to prime mortgages, commercial real estate, corporate junk bonds, and other forms of debt. General American bank losses may be as high as banks half of total capital; this will cause the sharp reduction of bank loans, which in turn may lead to serious economic recession of American economy.
The decline of profit rate
In the Marx theory, profit margin is usually regarded as the main factor to decide the overall condition in the capitalist economy (Mosley, 2003:212). In the capitalist economy which has very high profit rate is generally more prosperity, business investment and employment of workers' standard of living is high, and has the tendency of increase. This is occurring in the so-called “golden age ", capitalism in the early postwar prosperity. But, when there is low profit rate, prosperity decreases, may become the economic recession. Commercial investment decrease or remain stagnant, unemployment rate rises and people living standard drops (Mosley, 2003:212).
To understand the fundamental cause of the US economic crisis in 2008, we must take a long-term vision to see the post-World War II period. The most important reason of The United States economy in recent decades of poor economic performance is a very significant decline in the rate of profit as a whole economy. From 1950 until the nineteen seventies metaphase, In the United States of America economic profit margin dropped nearly 50%, from about 22% to about 12% .Profit margins decreased significantly already become the world trend during that period, affecting all the capitalist countries.
According to Marx's theory, the significant decline of the rate of profit is the main reasons of high unemployment and high inflation "double reverse” movement, also lead to lower real wages, in recent decades. In the past during the depression, lower profits for business investment, this in turn led to the slowdown in economic growth, high unemployment rate. There was an important new factor in the post-war period: many governments in the nineteen seventies take expansionary fiscal and monetary policies (more government spending, lower taxes and lower interest rates) to reduce unemployment.
However, the government’s policy which adopted by government to reduce unemployment, general lead to higher inflation, as capitalist enterprises responds to the government's stimulus of demand by raising the price at a faster rate, in order to restore profitability, instead of increasing the output and employment.
In the nineteen eighties, financial capitalists against these higher inflation rate,…