The Financial Crisis of 2014

The Financial Crisis of 2014

Introduction

Financial crisis is caused by a sudden imbalance in financial markets. This effect weakens the entire financial markets and brings the market prices of financial assets down. This leads to investors disposing these assets at a lower price; hence, losses will be incurred. The difference between this loss and constant market price is what brings about the financial crisis. Financial crisis is a global thing. It has effect on all economies across the globe. Financial crisis is a slow and steady effect that grips on the economy gradually until it takes root.

Weakening of the Dollar

Dollar is one of the widely used currencies across the globe. The dollar is used for all types of trades and transactions across the economy. Financial crisis of 2014 causes the prices of financial assets to drop down. This dropping of prices is associated to loss of currency. The loss of the currency being used to trade the financial assets leads to weakening of the currency. In most cases, the dollar is normally and widely used to trade financial assets. Therefore, the dollar will be weakened hence affecting its trading power. This will range from one economy to the other, for example, other will experience losses when trading their goods with the dollar. For instance, at one end, a person may decide to trade or rather to export goods from his country to another; this person will trade more goods for more money. This normally applies to the farmers who practice agriculture. On the other hand, a person who practices and trades manufacturing products, for example, cars, will benefit extensively from this effect on the dollar.

Trade Imbalances

The financial crisis of 2014 has affected the trading powers of economies negatively. This negative effect on the trading power is so extensive that most of the economies are almost running bankrupt. China is one of the world leading economies which have been affected by the financial crisis. China relies on 75% of its trading power to balance off the national budget. This is the main source of livelihood to the revenue kitty of this economy. This has had a great negative effect on the welfare of this economy. Trade imbalances; in terms of the selling power and purchasing power from one economy to the other, has been affected totally due to the financial crisis that is taking root. The purchasing power of the stable economy has been affected by the effect of low trading volumes in exchange of high prices. This is the most affected sector that is causing trade imbalances in the global perspective.

Increased Debt

Most independent economies have witnessed instances of increased debts. Financial crisis causes an economy to run out of revenue. Given the fact that, an economy can’t operate without influx of revenue, then the central government borrows from the world bank in order to offset this menace. Borrowing leads to acceleration of debt into the economy. An economy that is subjected to plenty of debt can’t operate efficiently. This is due to the bare fact that, it has to offset the outstanding debt first before going forth for other investments. Increased debt has led very many economies to low economic development and growth. This is attributed to the fact this type of an economy is operating on a loss and hence offsetting this imbalance will take a great deal of time before it is done.

Increased Interest Rates

Financial crisis of the 2014 has caused the market interest rates to rise up. This is due to the mere fact that; due to the increased borrowing, the economy regulators tend to hike the interest rate within the economy in order to reduce borrowing. Increased in market interest rates has had negative effects on the prices of essential goods. The prices of essential goods have been increased to ensure that there is trade-off balance to offset the pending debt that was borrowed. Most of the consumers in the economy drop off due to the heavy market prices that are way beyond their expectations. Due to the increase in market prices of goods, the consumers’ purchasing power is lowered. The purchasing power of the consumers is the ability by the consumers to buy a given number or size of goods at a given period of time. An instance where the purchasing power is irregular then possible chances of inflation might be triggered. This financial crisis has been detrimental to the welfare of the economy and that of the consumers. Instances where prices of goods goes up stimulates hoarding of goods from the black market or from other economies. These hoarded goods are then sold at a lower price compared to the current market price. This has negative effect on the sovereignty of the economy.

Loss of Confidence on Future Economic Pattern

Financial crisis of 2014 was untimely. It came at a time when it was least expected. This is due to the stable conditions that favored the economy. This has led to loss of confidence on any future economic pattern by the consumers. This financial crisis didn’t show any sign of taking effect on the economy, it happened at a period of less than three days. This crisis took place when all the economic parameters were constant. Consumers as well as the producers are beginning to develop a negative attitude towards the economic patterns. They seem to be confusing both the producers and consumers. Constant signs of confidence waiver is manifesting as the situation is slowly getting back to normal.

Conclusion

Financial crisis is an effect that affects economic stability. This crisis is proofing to be an annual event due to its constant repetition. Economists ought to devolve some of the best strategic approaches that should be used to avert these instances in the future. Most of this financial crisis can be attributed to the failure by governments to stabilize their economies. When this happens, the effect is spread gradually from one economic circle to the next one until it affects regional economy. World banks should also come up with ways that can be used to mitigate the borrowing menace. It should develop policies that enhance an economy to borrow money from it, only when in need. Every economy should have a residual reserve that can be used to address instances of financial crisis in the near future. This will determine the level of preparedness of a given economy. Hence, this will work to boost economic development and curb instances of negative effects that is brought along with financial crisis.

Bibliography;

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