Term Paper on Global Financial crisis 2007-2009

In the today’s competitive world everything is going well, if any disruption occurs in the financial system then financial crisis take place in the global financial market. The term financial crisis is applied broadly to a variety of situations in which some financial institutions or assets suddenly lose a large part of their value. In the 19th and early 20th centuries, many financial crises were associated with banking panics, and many recessions coincided with these panics. Other situations that are often called financial crises include stock market crashes and the bursting of other financial bubbles, currency crises, and sovereign defaults. Financial crises directly result in a loss of paper wealth; they do not directly result in changes in the real economy unless a recession or depression follows.
Many economists have offered theories about how financial crises develop and how they could be prevented. There is little consensus, however, and financial crises are still a regular occurrence around the world.

In good times, financial markets embrace capitalism. In bad times, financial markets re-discover socialism. Currently, the US Federal Reserve is engaged in a dangerous strategy to look after its Wall Street friends. The origins of the current credit crisis lie in a loose monetary policy and excessive capital flows that were turbo-charged by "financial engineering" techniques used by banks.

Borrowing bought more borrowing, fuelling price increases in financial asset - debt, equity, property, infrastructure. In this report we have discussed about the reason for global financial crisis, monetary policy taken by the govt. Fiscal policy launched by the govt. Monetary policy and fiscal policy combination and its recovery.

The Great Recession that began in 2007 appears to be bottoming out, although unemployment continues to increase. Numerous small banks and households still face huge problems in restoring their balance sheets, and unemployment has combined with sub-prime loans to keep home oreclosures at a high rate. The U.S. economy shrank by 1.0% in the second quarter, much less than the 6.4% decline in the first quarter. Modest growth is expected in the second half of the year. Inventory reduction has been a drag on growth, but foreign trade has been a large plus. Revised data show a real GDP decline of 3.9% over the past four quarters, the steepest peak-totrough decline in postwar history.