Sample Essay On Financial Crises

Introduction

The various global financial crises have primarily hit large and small nations as well as rich and poor ones and have been pervasive for numerous years. The common thing with the financial crises is that they usually stem from public or private sectors and come in different sizes and shapes. Ideally, these crises dictate worldwide coordination of policies, call for key changes in fiscal policies and financial sector, and require both comprehensive and immediate policy responses. For this reason, this essay focuses on the 1929-33 financial crisis, elucidating what happened as well as what we can learn from it. Additionally, the essay describes whether better policy choices could improve the outcomes and whether the historical scenario looks like anything happening in the present day.
The 1929-33 financial crisis is considered as the big one among the other earlier financial crises. It was the largest financial crisis experienced in the world. In fact, the length and depth of this crisis as well as the suffering that it produced is legendary. Prior to this financial crisis, there was a boom in the United States as well as in international economies. However, there was a severe decline in the supply of money and a decrease in the economic activity as a result of this financial crisis. The financial crisis led to a series of bank failures hence this generated panic among the depositors (“Financial Crises”, 2015). As a result, this resulted in prevalent bank runs across the United States.
The deteriorating economic and financial situation and the absence of expansionary monetary policy worsened the situation in the US hence this led to the establishment of the FDIC to deal with the problem of bank runs. From this financial crisis, we learn the importance of giving the central banks power to add liquidity devoid of limit to the financial markets during the financial crises. The financial crisis would not have persisted for many years if the Federal Reserve had essentially followed monetary policy easing at first. The policy would have improved the outcomes at first because it would have spurred the deteriorating economy into growth mode through making the capital readily available. Conclusively, this historical scenario does not resemble anything happening in the present day since the contemporary financial systems are not like the past. In fact, the financial crises helped in shaping the modern financial institution that are now capable of dealing with the current economic issues.

References

Financial Crises. (2015). The Economists. Retrieved from http://www.economist.com/news/essays/21600451-finance-not-merely-prone-crises-it-shaped-them-five-historical-crises-show-how-aspects-today-s-fina