The Effects of Deregulation on Global Economy

1646 Words7 Pages
Thesis: Deregulation has more negative effects on global economy than positive.

Deregulation, this word is heard on the news, economists use this word quite often, and government officials are somewhat terrified of this word. What does deregulation mean?
Deregulation is the process in which a government may remove or reduce certain restrictions in matters of business to have a more efficient operation of markets. By observing the effects that deregulation can cause on an economy, can help later generations not commit the same mistakes that the past or the current generations have done.
In today's global economy being regulated by the government is in the norm. Businesses that deal with a very competitive field are limited as
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"The Federal Reserve is struggling to contain what is already the most severe credit contraction since the Great Depression". This is the consequence of a series of financial deregulations. This caused the American economy to depend on asset bubbles. Asset bubbles are overvalued stock, overvalued real estate, and dubious financial instruments.
What have caused this bubble to grow even larger? Speculative borrowing have caused this bubble to pump itself up. Just like in the 1920s the borrowing feeds on itself. This causes inflation of assets and these bubbles are caused by interconnected hedge-fund profits that are reliant on high-yield sub-prime mortgages. Basically this means that people infest in stocks or funds by borrowing money. When people borrow this money they are buying from each other which causes the prices to grow or a better word to use is inflate. That is why the stock market bids could soar by risky private equity deals. So what would happen if they prices fall?
If the air comes out of this bubble so does the air of others. Prices fall which means people can't sell their real estate, stocks or funds at the prices they bought it our higher. When this happens then they would not be able to finish paying their mortgage. So the investors that have borrowed money from the bank lose money, and the bank loses money. This crisis is hard to manage for the Federal Reserve.
This crisis
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