International Economic Problems That Have Happened Recently

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International Economic Problems That Have Happened Recently

International economic problems happen due to markets and economies being interconnected. This interconnection increases their interdependence. Successes and failures in one part ripple across borders and have a domino effect on economies globally. The recent energy crisis had the most widely felt effects across the world. Energy costs soared almost fivefold. This was precipitated by sharp increases in crude demand from the early 2000s. Market forces then led to unprecedented increase in global crude prices (Krueger, 10). Though American and Chinese demands experienced the greatest changes, developing countries were the most hit. This led to an increase in living costs throughout the world with developing countries being the worst hit. This is because they have high-energy requirements for development. This period saw substantial increments in some nation’s sovereign debt as they struggled to meet their energy requirements. This period also saw the increase in the value of many oil producing nations and individuals with vast oil interests. Crude prices experienced a deep dive in 2008 with prices falling to lows of $32 before stabilizing at an average of $70 by 2010. Many individuals and companies lost at least half their capital value. This can be attributed to crude demand decrease due to research and investment in alternative fuels.

Greed and poor regulatory frameworks greatly contributed to the worldwide banking crises from 2008. Many banks’ management shifted their focus to the refinancing of existent loans to mortgages without consideration for client repayment ability. Mortgages are secured long-term loans and have higher projected returns with low inherent risks due to the collateral that accompanies them. This effectively reduced bank liabilities but increased people’s debt while reducing their ability to service their debt obligations comfortably. This led to defaults in payments causing mortgages to fall into arrears and incurring penalties. By the time repossessions were taking place, the amounts owed had risen significantly higher than their corresponding collateral book value. This led to massive drops in the value of the houses put up as collateral. Many financial institutions lost considerable percentages of their capital value. It also increased the global housing crisis by rendering many families effectively homeless. Many governments had to step in with emergency budgetary allocations to save their national banks and try to curtail the rising housing deficit increasing their sovereign debt (Shiller, 38). Since the bailout monies in now part of their sovereign debt, nations have a stake in ensuring the affect and health of these banks and financial institutions. This has led to stricter oversight frameworks into the registration and operations of commercial banks from central banks.

Increasing sovereign debt from bailouts coupled with unsound financial policies caused Europe to be hit by the worst financial collapse. The Euro is not governed by common policies. Each country in the zone has its financial policies. Poor policies that lead to the Euros’ devaluation in one region affect all other partner nations. This has necessitated third party interventions through regional borrowing from neighbor states and financial institutions in efforts to ensure the currency’s stability and rein in runaway interest rates. Europe is one of the world’s largest consumer of both finished goods and raw materials. Spiraling debt has increased unemployment reducing available dispensable incomes. This has led to a decline in demand for imported goods while manufacturers have had to cut down on production reducing their raw material demands. This has negatively affected supplier revenues across the globe from decreased commodity demand. This has affected those countries that have a majority of their exports going there.

 

Works Cited

Krueger, Lisa. The Energy Crisis. Detroit, MI: Greenhaven Press, 2010. Print.

Shiller, Robert J. The Subprime Solution: How Today’s Global Financial Crisis Happened and What to Do About It. Princeton, N.J: Princeton University Press, 2008. Print.

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