Mounting unemployment rate, depleting economy, dwindling foreign reserves, plummeted exports & trades and poverty are some escalating issues which we have been encountered from last 1 and half year, which not only broken the back of the officials but also throw the whole world including the government into a severe distress.
No one even think that the world’s economy as whole can plunge as badly as it did recently, but truly it was the current financial crisis tsunami which suppressed cruelly the peoples and other officials to think in this manner as well. A large number of people are still unaware with the term financial and credit crisis. From an Economist view point, a financial crisis occurred when a conflict disordered the money supply and wealth of the economy, or in laymen terms it can be said that, when a shortage of cash and liquidity prevails in the economy, it is referred to as financial or credit crisis (Krugman, 2001). The term financial crisis is applied to a number of scenarios or situations where the financial institution of a country abruptly looses a large part of their asset. The world suffered enormous number of severe financial crisis after the World War II but not a single one resulted in shrinking the world economy in an offense, like the current financial crisis did.
Before the arrival of the current financial turmoil, the world’s economy as a whole was stagnate and was moving with a good pace. Almost all the economical indicators like balance of payment, Foreign Direct Investment (FDI), trade surplus, consumer price index and underestimated unemployment rate showed green signals in the long run for the economy. The main prospective of this study is quite straightforward, we want to pen down the economic policy of Australia and after the hazards of the current economic downturn. We have a planned approach to do this assignment. First we will define about the ordination of the current credit crunch and its hazards mainly on Australia. Previously it had been seen that the macro economic policy of Australia is to control the inflation but now their prospective gets change, now they want to overcome on the recession, they recently envisaged.
The Origination of the Current Financial Crisis: In July 2007, confidence of the peoples tumbled from the real estate market and mortgages, known as sub-prime mortgage crisis, from there the United States (U.S) market plunged in a severe recession. The mortgage crisis hit badly, the two biggest mortgaging firms Fenny Mae and Fredrick Mac and suppressed them to be default. Because of the default of the two giant mortgaging companies, the moral and confidence of the investors tumbled and the people were reluctant to invest in the real state sector, then the cash shortage occurred in the market in the year 2007, which pushed more industries towards the brink of the bankruptcy.
In September 2008 financial institutions of USA suffered a severe loss first time after 2 to 3 decades, and urged the giant investment bank namely Lehman Brothers and Morgan Stanley to be bankrupted, which had made the economy and financial environment a very difficult time for the economy of US as well as the economy globally (Sorkin, 2008). American International Group (AIG) had insured many billion of dollars of securities and loans pledged held by a number of banks around the world and after its failure, the money they have rendered became worthless. As per an estimate the banks pledged over $50 billion in credit with the company which have been lost after the bankruptcy of the biggest group of USA, which urged the liquidity crunch to come on the screen. Before the financial crisis tsunami hit the world the United States of America was dominated the world with its strong economy and currency. A number of countries in Asia, Middle East, Russia and Europe were indulged with USA in exports and imports business and by the tumbled or deteriorated situation of USA; the said countries also envisaged a negative impact on their economy and from there the financial crunch spread globally like a forest fire. American economy are mainly emphasizes on credit, albeit every household borrow money homes and car loans recurrently that’s why the country didn’t imposed any limit on the credit cards of the enterprises and not even on the individuals, which induced the major lending and investing institutions to envisaged a deeper recession, which was the worst after the World War II great depression. Citigroup is one of the victim of the severe financial constrain. The group recorded the biggest loss in the financial year of 2008 in its corporate history and slashed 30,000 to 40,000 jobs across the globe. Hundred of thousand of jobs had been lost in USA as well as from the world, as every industry cut down its workforce to condense their expenses. Due to the dominating power and instinct of the USA, the country must influences world’s economy as a whole and leaves a positive or negative impact on the economy with respect to the fluctuation in the economy of USA.