Current International Financial Crisis and Solutions
The present financial crisis is a phenomenon that has hit the U.S and the global economy. The global financial crisis has its origins in the 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 https://advanced-writer.com/write-my-speech
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 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 and by 2010 there would be no solutions. This adds to 1.4 billion people 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 cutting down extravagant U.S military budgetary provisions. Trade deficits can also be addressed by domesticating the offshore 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.
Ideally, 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 begin from the U.S, especially with emphasis on prudent policies on its financial and trade sector policies.
The suffering of most Americans has not gone unnoticed, with the President Barack Obama constantly giving an account of government progress on how the crisis is being handled. The most recent announcement by the President is an increase in the rate of tax for the rich. The tax raise among the rich will lead to an increase in national revenue that can then be used to create jobs at national levels. This move has elicited controversy, with some supporting, while others attack the move as inappropriate. It is like taking from those who are rich and distributing it to those who are poor. Despite raising taxes for the rich, taxes for foreign people should be lowered.
The best way to create employment opportunities for citizens is to revive private spending which will encourage investment in plant and equipment. Demand can only be high if people have enough disposable income. The Obama administration is applying the Keynesian school of thought by coming up with policies that encourage government spending and taxation as a way of overcoming economic recession. The health bill sponsored by White House is meant to subsidize medical insurance premiums for low-income earners through government funding. Imposing high income tax for high-income earners compared to low income earners is a Keynesian way of stabilizing the economy. Before 2009, the US economy largely depended on private spending and that is why the country experienced an economic recession because some individuals became bankrupt. According to the Keynesian theory, the government should increase its spending rather than relying on private spending. An increase in private spending can lead to inflation and the government should always be prepared to deal with such scenarios. According to the Keynesian theory, decreasing government spending and increasing taxes is recommended in the case where private spending is high. The government should always be on the look out to tame recession and inflation rates. The Keynesian theory favors low-income earners and that is why the rich always oppose policies inspired by this theory.
When a government is facing huge deficits, tax revenue can be raised by increasing the tax rates. Taxation is a tool that can be used to rescue an economy facing difficult times. Proper design of a tax policy can be a panacea to the prevailing economic hard times such as unemployment. The United States have sought to follow Germany’s way to rescue its economic from adverse effects of its current debt position.
To encourage foreign investment, tax rates should be reduced for them, and sometimes coupled with tax havens, allowances and subsidies. This will encourage them to take up their new investment in the economy. When the rates of business taxes and corporate tax are low, this can stimulate a business to increase its spending in fixed capital investment. An increase in investment will mean that the capital stock of a nation has increased thus an increase in capital stock of every worker employed.
Government can use incentives such as tax allowances to boost research and development and in encouraging new business developments. A favorable tax regime will attract increased inflow of FDI (Foreign Direct Investment). This will be a stimulus that will benefit an economy’s aggregate supply and aggregate demand. Low rates of corporation tax will attract huge amounts of private investment. Tax changes acts as a stimuli of investment in capital assets, social infrastructure, labor force skills as well as in technology. A good tax system will ensure an improvement in infrastructure, which is essential for economic growth through increased production and competitiveness. Government spending can be terms of development of an education system that is skills oriented and technology focused. This will ensure a steady long-term supply of human resources.
In case of the United States, an increase in tax has no chance any time soon. The reason is that the required budget consolidation should occur on the expenditure part. This will imply the reduction in government expenditure and will have adverse effects on the economy.
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 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 and by 2010 there would be no solutions. This adds to 1.4 billion people 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 cutting down extravagant U.S military budgetary provisions. Trade deficits can also be addressed by domesticating the offshore 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.
Ideally, 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 begin from the U.S, especially with emphasis on prudent policies on its financial and trade sector policies.
The suffering of most Americans has not gone unnoticed, with the President Barack Obama constantly giving an account of government progress on how the crisis is being handled. The most recent announcement by the President is an increase in the rate of tax for the rich. The tax raise among the rich will lead to an increase in national revenue that can then be used to create jobs at national levels. This move has elicited controversy, with some supporting, while others attack the move as inappropriate. It is like taking from those who are rich and distributing it to those who are poor. Despite raising taxes for the rich, taxes for foreign people should be lowered.
The best way to create employment opportunities for citizens is to revive private spending which will encourage investment in plant and equipment. Demand can only be high if people have enough disposable income. The Obama administration is applying the Keynesian school of thought by coming up with policies that encourage government spending and taxation as a way of overcoming economic recession. The health bill sponsored by White House is meant to subsidize medical insurance premiums for low-income earners through government funding. Imposing high income tax for high-income earners compared to low income earners is a Keynesian way of stabilizing the economy. Before 2009, the US economy largely depended on private spending and that is why the country experienced an economic recession because some individuals became bankrupt. According to the Keynesian theory, the government should increase its spending rather than relying on private spending. An increase in private spending can lead to inflation and the government should always be prepared to deal with such scenarios. According to the Keynesian theory, decreasing government spending and increasing taxes is recommended in the case where private spending is high. The government should always be on the look out to tame recession and inflation rates. The Keynesian theory favors low-income earners and that is why the rich always oppose policies inspired by this theory.
When a government is facing huge deficits, tax revenue can be raised by increasing the tax rates. Taxation is a tool that can be used to rescue an economy facing difficult times. Proper design of a tax policy can be a panacea to the prevailing economic hard times such as unemployment. The United States have sought to follow Germany’s way to rescue its economic from adverse effects of its current debt position.
To encourage foreign investment, tax rates should be reduced for them, and sometimes coupled with tax havens, allowances and subsidies. This will encourage them to take up their new investment in the economy. When the rates of business taxes and corporate tax are low, this can stimulate a business to increase its spending in fixed capital investment. An increase in investment will mean that the capital stock of a nation has increased thus an increase in capital stock of every worker employed.
Government can use incentives such as tax allowances to boost research and development and in encouraging new business developments. A favorable tax regime will attract increased inflow of FDI (Foreign Direct Investment). This will be a stimulus that will benefit an economy’s aggregate supply and aggregate demand. Low rates of corporation tax will attract huge amounts of private investment. Tax changes acts as a stimuli of investment in capital assets, social infrastructure, labor force skills as well as in technology. A good tax system will ensure an improvement in infrastructure, which is essential for economic growth through increased production and competitiveness. Government spending can be terms of development of an education system that is skills oriented and technology focused. This will ensure a steady long-term supply of human resources.
In case of the United States, an increase in tax has no chance any time soon. The reason is that the required budget consolidation should occur on the expenditure part. This will imply the reduction in government expenditure and will have adverse effects on the economy.
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