Russian Crisis

All three options directly address problem of the current accounts and financial and capital accounts. While deflation and capital control can remedy both current account and financial and capital accounts, devaluation only has immediate impacts on the current account. (Figure 1 bellow illustrates direct impacts of each option to these accounts.) However, as exchange rates, interest rates, economic growth and balance of payments are interacted, when one components of the balance of payment improves, the other accounts will also recover. For example, when import demand increases, demand for the dollar also increases, and therefore can prevent the outflow of gold from official reserve. That being said, all three options can solve U.S balance of payment problem; however, there must be cost incurred that Kennedy government have to consider.

Along with the stocks and bonds, there was also a high demand from foreigners wanting American goods. This occurred because the deflation from the United Sates made it so appealing to foreigners (Romer). On the other hand, because there was such a low income from Americans it reduced their demand for foreign products (Romer). Unfortunately other countries were trying to maintain an international gold standard in order to continue to meet the monetary contraction that was occurring in the United States (Romer). Sadly, this resulted in the deterioration of output and prices throughout countries all over the world. This downturn of other countries started looking like the one occurring in the United States (Romer). Banking panics along with financial crisis started occurring in other countries around the world, not just in the United Sates (Richardson, September 2007). By forcing countries to deflate, the gold standard reduced the value of bank’s collateral and made them more vulnerable to bank runs (Romer). Due to the overwhelming panics in banks and other financial market disruptions, countries globally experienced a tremendous depression in output and prices (Paul Evans).

All day and all night, they battled the emergency with each instrument available to them to keep the United States and world economies above water. Working with two U.S. presidents, and under flame from a crabby Congress and an open angered by conduct on Wall Street, the Fed—nearby associates in the Treasury Department—effectively settled a wavering monetary framework. With inventiveness and definitiveness, they kept a financial fall of incomprehensible scale and went ahead to create the strange projects that would resuscitate the U.S. economy and turn into the model for different nations. Rich with detail of the basic leadership prepare in Washington and permanent representations of the real players, The Courage to Act relates and clarifies the most exceedingly bad budgetary emergency and monetary droop in America since the Great Depression, giving an insider 's record of the approach reaction (http://www.forbes.com/sites/richardsalsman/2012/03/06/five-financial-reforms-that-would-prevent-crises-and-promote-prosperity/#).

The financial crisis of 2008 has been described as the worst financial crisis the world has seen since the great depression, but there are now murmurings of the potential for an even greater financial crisis, a currency crisis, caused by the demise of the US Dollar. The Dollar has been the reserve currency of the world since it took over from the Pound at the end of world war two, but we examine if it is about to crash spectacularly?

The financial crisis that happened during 2007-09 was considered the worst financial crisis in the world since the great depression in the 1930s. It leads to a series of banking failures and also prolonged recession, which have affected millions of Americans and paralyzed the whole financial system. Although it was happened a long time ago, the side effects are still having implications for the economy now. This has become an enormously common topic among economists, hence it plays an extremely important role in the economy. There are many questions that were asked about the financial crisis, one of the most common question that dragged attention was ’’How did the government (Federal Reserve) contributed to the financial crisis?’’

For as long as money has existed, governments have sought to control its supply for their own benefit. The ancient Romans, for instance, regularly debased their coins so that, by the end of the 3rd century AD, the actual content of silver had declined to less than 5% purity. The debasement of and inflation of the money supply has historically been a tool of governments to expand their power. In conventional economics, which this paper will assume as a positive background in defending the feasibility of a sound money amendment, the result is a redistribution of real wealth from savers to the government, the banking and finance system, and other

With the mortgage crisis recorded in the United States, the country’s currency declined in value in respect to other world currencies. Increase in money supply led to an increase in the volume of money in circulation in the United States. This led to a rise in prices of goods. Because of this, the value of the dollar declined in the international money markets. The decline in value of the dollar led to imports becoming very expensive. This further reduced the country’s production capability, leading to a further economic decline. A devalued currency makes a country’s exports cheaper than those of other countries. This has the potential of boosting the level of exports in countries with devalued currency thus reducing their balance of

The topic of international relations has been gaining significance in the modern world following the increase in the popularity of globalization and the need for peaceful coexistence between nations. The high rate of advancement of communication technology, complex global economy, faster means of transport and an increase in value for cooperative relationships are vital to the global society (Almoni 1). A positive relationship between countries, especially the neighboring ones is expected to facilitate the formulation of effective trade agreements. In addition, the issue of immigration or movement of people from one country to another cannot

The fixed exchange rate regime of 1945-1973 failed because of widely diverging national monetary and fiscal policies, differential rates of inflation, and various unexpected external shocks. The U.S. dollar was the main reserve currency held by central banks was the key to the web of exchange rate values. The United States ran persistent and growing deficits in its balance of payments requiring a

In 1994, the world saw the decline of the Mexican Peso, leading to what is now considered as the Mexican Peso Crisis. The crisis was characterized by the drastic decline in the value of the Mexican Peso. The Mexican Peso Crisis is considered significant because of its impact on other parts of the region, including Brazil. The following is a discussion of the causes and impact of the Mexican Peso Crisis.

Deutsche Bank (Karczmar, 2004) suggests that the euro could eventually challenge the dollar as a reserve currency, but the euro is still far behind the U.S. dollar as a reserve currency, representing just 24.2 percent of the world banking reserves in the 2013 third quarter (International Monetary Fund, 2013). Numerous economists endorse the United States’ ability to safely continue its external deficits. Cooper (2001) poses the argument in its simplest form:

Russian crisis of 1998 were caused due to a number of factors, the investor risk aversion by foreign players, fall in oil prices put the ruble under a drastic downward trend. Russia at that point in time was heavily dependent on capital inflows which was eroded due to the external shocks e.g Asian financial crisis etc country

Current Account Deficit. A rise in the ratio of the current account deficit to GDP is generally associated with large external capital inflows that are intermediated by the domestic financial system and could facilitate asset price and credit booms. A large external current account deficit could signal vulnerability to a currency crisis with negative implications for the liquidity of the financial system, especially if the deficit is financed by short-term portfolio capital inflows. Financial crises that have

| Advocates of active monetary and fiscal policy view the economy as inherently unstable and believe that policy can manage aggregate demand, and thereby, production and employment, to offset the inherent instability. When aggregate demand is inadequate to ensure full employment, policymakers should boost government spending, cut taxes, and expand money supply. However, when aggregate demand is excessive, risking higher inflation, policymakers should cut government spending, raise taxes, and reduce the money supply. Such policy actions put

A fixed exchange rate regime will offer an economy greater stability in international prices and therefore encourage trade. Additionally, for developing countries a fixed rate will assist in promoting institutional discipline as the country will adopt restrictive monetary and fiscal policies that foster an anti-inflationary environment. A significant weakness of a fixed rate is that it is subject to destabilizing speculative attacks which could lead to financial meltdowns and devastating economic contractions. A floating exchange rate regime allows central banks to combat macroeconomic factors such as unemployment, inflation, and interest rates without having to worry about the effect on exchange rates. However, developing countries whose economies depend on trade will be reluctant to allow their exchange rates to fluctuate freely.