Impact of Financial Crisis on Gulf Area Essay

Best Essays

Background The global financial crisis that was experienced in 2007/2008 affected many nations of the world. Some countries such as America and most European countries were hard hit since they were directly affected by the crisis. Other countries especially those in Asia and Africa were not adversely affected as they were not directly hit by the crisis. This crisis started in the United States after the housing bubble busted. Although the bursting of the housing bubble was the main cause of the crisis, there were a series of events that preceded it. One event that indirectly contributed to this crisis was the Russian debt crisis as well as the Asian financial crisis that took place in 1997/1998. These two events made many investors to …show more content…

This foreclosure negatively affected both the financial institutions as well as individual borrowers. For the borrowers, their wealth was drained and their purchasing power eroded (Martin, 2009). For the financial institutions, their strength as banking institutions was greatly affected. Their liquidity had greatly reduced and most of the banks were struggling to carry out their daily monetary activities. The total losses that were recorded during this crisis were estimated to be trillions of dollars globally. The Federal Reserve as well contributed to this crisis through some of the policies that it instituted. Between the year 2003 and 2004, this institution lowered the rate of the federal funds from the initial 6.5 per cent to just 1.0 per cent (Jane, 2011). This move was aimed at addressing the effects that were associated with the terrorist attacks that took place in September of 2001. These measures were also meant to soften the negative effects that were occasioned by the collapsed dot com bubble. At this time also, there was a perceived risk that the United States could suffer from deflation. These measures were therefore aimed to combat this risk of deflation. These measures increased credit uptake but the expected results were not realized. To address the said problems, it was expected that the money borrowed would be invested in business.

Get Access