Global Imbalance Case Study

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1 INTRODUCTION The great depression has been argued to have been caused by many factors. The frequently used argument is the global imbalance reflected by economic policies of East Asian countries. However, in the unexpected global financial crisis, Justin Yifu Lin argues global imbalance resulted from increased demand in the US from recent international wars and tax cuts. In addition to this, over consumption by households supported by wealth effect from the housing bubble. This is explained by back tracking events which had occurred in the lead up to the crisis, allowing for better understanding on root causes and why this financial crisis was unexpected causing a large global imbalance unlike similar past events. The authors show different…show more content…
Through promotion of exports using both macro and micro economics. These combinations were crucial in creating the global imbalance. Secondly self-insurance motivation for foreign currency reserve accumulation as a form of protection against repeat balance payment crises after the East Asian financial crisis. During this time Chinese authorities maintained an artificially low RMB level. Supporting the country’s export competiveness and ‘repeatedly maintained as key factors behind China’s rising trade surplus and global imbalance.’ Thirdly, policies placed throughout East Asian countries especially China’s exchange rate have had many arguments on their success and failures. There were few key areas explained in this paper describing policies undertaken and the consequences of these. One such failure is, The objectives to arterially reduce the value of the RMB in order to boost export rates and reduce imports is argued to be the root cause of global imbalance since…show more content…
Firstly, the global financial crisis largely being the cause of the greatest crisis in global economy since the great depression. Secondly, due to the organized efforts of G20 countries, world economy avoided one of the worst possible scenarios. Thirdly, world economy remains fragile. This results in high unemployment and large excess capacity in advance economies. As well as this high sovereign debt and crisis in Euro-zone. This research I believe therefore, points out the positive and negative actions of both the US market as well as East Asian countries. This has allowed for the above final decisions on the research on the root cause of the global financial crisis although different from the frequently argued values and future policies need to be evaluated for all effects and

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