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Identify And Explain The Consequences Of The 2008 Financial Crisis

631 Words3 Pages

Financial crises are caused by unprecedented changes in the global economy such as when OPEC countries doubled oil prices in 1979 which caused a severe recession in developed countries and in turn a reduction in demand for commondities from less developed countries. All of this coupled with President Reagan raising interest rates to put a damper on inflation caused by the increased price of oil and banks giving variable interest rate loans given to less developed countries which caused tremendous levels of debt to occur to said countries (pg. 341,342) This is the primary explanation used by banks and states because it puts the blame on the global economy instead of the lender or borrower. (pg. 342) In actuality financial crises are also caused by irresponsible behavior on the part of both the lender and the borrower. …show more content…

[insert example 2008 financial crisis] Borrowers can be guilty of seeking out private loans in order to avoid making economic reforms that would be required to borrow from the IMF. The consequences of this "easy way out" borrowing can be poor investments or misuse of funds made by the borrower that do not increase growth or productivity which inevitably leads to the borrower defualting on the loan. This can be seen in Latin America during the 1980s financial crisis where Brazil, Mexico, and Argentina had tremendous debt service ratios due to using import substitution policies instead of export-led growth policies used by many East Asian countires which would have allowed them to better tend to their debts. (pg.

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