Comparison and Contrast of the European and American Financial Crises
Introduction
The financial crises that began in the year 2008 marked one of the most significant blows to the two major economic systems of the world, the United States and European nations, especially Spain and Greece that were the most severely affected nations. The political and economic crises of both economies experienced a similar crisis due to the massive debts that were being incurred. Allan Blinder, one of the most prominent US economists, provided a profound analysis into the situation, calling for proper policy formation as the best tool that would save the economies from further effects of the crisis. Below is, therefore, an analysis of his works on the state of the situation.
Analysis of Similarities and Differences of the Financial Crises
Similarities of the Crises
Unfavorable government policies are some of the major causes of the crisis that swept through the two economic giants of the world. Buiter (24) stated that governments from the two respective economic regions had initially enacted fiscal policies such as the sale of treasury bills, which later on harmed the economies. This situation caused an excessive supply of money among the American and European markets, thus the rise in rates of inflation.
Absolute government control contributed heavily to the economic crisis that marked record to the world. Most of the European nations have their governments exercising too much control over significant decisions that affect citizens in the countries (Buiter 25). European countries such as the Republic of Ireland were under the almost total control of the state, a factor that gave Economists little chances of quickly intervening to bring forth control measures. Blinder stated in the US. Most decisions are made in the upper house, thus limiting the business community as well as citizens from intermediating to solve the crisis.
Allen (11) claimed that employment was a significant indicator of the great financial crisis. The US recorded a surprising increase in the rate of unemployment to a whopping 7.5%, while the European Union posted a fantastic 12% on the same case. These historical figures were extremely discouraging, as the economies are well known to have been initially recording impressive levels of employment. At these stages, massive retrenchment and pay cuts were also realized as the allied governments struggled to enact emergency measures meant to revive the economies.
The Monetary policy measures were adopted in both economies by the competent central banking authorities as one of the most convenient tools for correcting the affair. However, focusing on the attempts, the crisis grew significantly at initial stages in economies to reaching the uncontrollable rates. According to Allen (12), this situation called for intervention by the International Monetary Fund (IMF) and the European Commission Bank to aid.
Differences of the Economic Crises According to Blinder
Blinder outlined some of the significant differences that were experienced in the two models that were affected. The Federal Reserve, which is the central bank of the US, is independent of the government in making monetary policies; thus, the bank was believed to have been responsible for the high-interest rates, which are contrary to the will of people. On the other hand, the European Central Bank works closely with the governments of European nations, thus giving room for consultation and stabilizing of lending rates. The US was believed to have employed strict austerity measures, according to Bordo (276), that sought to reduce the supply of currency in the market. On the other hand, the EU adopted means that could slowly bring the amount of money to equilibrium levels. This point seems to imply, therefore, that the US immersed itself deeply into fiscal policy measures while the EU applied moderated control on the same. However, both of the means would, later on, provide solutions to the crises.
Having experienced recession at an earlier stage in the year 1929, as stated by Reinhart &Kenneth (467), the US had a better picture of the situation compared with the EU. This ideology would, therefore, call for immediate action by both the government and the Federal Reserve. The EU, however, opted to have equal control of the recession.
The imagination of a perspective on the crises
Governments generally depend on debts that help in financing their operations. However, as a Greek nurse, the decision by both the European Union and European Central Bank to pay pension, have a compulsory pay cut. I would probably lose my job, given that the recession is being experienced in all parts of Europe. I would, therefore, recommend a slight wage increase for all Greek workers to facilitate all the deductions. However, as a Germany worker, the deductions are n act of compassion and unity. I will thereby embrace the decision for a better chance to get high credit acquiring positions for my country. The legislation acts of Troubled Asset recovery Program (TARP) and the American Recovery and Reinvestment Act (ARRA) would be a big boost to my growth. Since some funds would soon be available to enable me to cope up with basic life, especially after prolonged challenges of job loss.
Reflection on the Financial Crisis
Lessons from the Financial Crises
The occurrence of the disastrous financial crises in the two regions of the US and Europe has significantly contributed to my understanding of the need to employ relevant fiscal and monetary policies among all the economies. Furthermore, both sectors of the economy should be allowed to exercise a certain percentage of their powers in their jurisdictions. This condition should be closely monitored by all the relevant bodies of the economy. The IMF and other international monetary institutions should also enact strict measures that can ensure quality lending practices, which can stabilize economies of borrowing as well as lending countries. Unity is another aspect of economic development that requires the cooperation of all members, such as the situation facing Greece, where all member countries of the EU have vowed to help and are contributing through pay cuts.
My Professional Goals and Ambitions
My professional goal and ambition are to successfully excel in the economic field, thus creating room to provide healthy analyses of various economies in the world. I firmly believe that my abilities will help in providing lasting and workable solutions to economies that could perhaps exhibit similar challenges as the ones on the significant financial crises. Through this course, I have now equipped myself with knowledge, skills, and exposure to the real-world economic challenges that need close monitoring, agile approaches, and defined decisions. For instance, the financial crises that were experienced in the two most stable economies of the world are enough to explain the relevance of every stakeholder, especially economists and citizens of the affected countries.
Works Cited
Allen, Franklin, and Elena Carletti. “The role of liquidity in financial crises.” Available at SSRN 1268367 (2008).
Bordo, Michael, and Harold James. “The European crisis in the context of the history of previous financial crises.” Journal of Macroeconomics 39 (2014): 275-284.
Buiter, Willem H. “Central banks and financial crises.” (2008).
Reinhart, Carmen M., and Kenneth S. Rogoff. “The aftermath of financial crises.” American Economic Review 99.2 (2009): 466-72.