Global Financial Crisis

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The first lesson learned in the global financial crisis was that the models used before the crisis neither predicted the crisis nor gave a framework solution to the crisis. That meant there is a lot of work to be done. Monetary policy’s new frontier could be inflation but it is not the central target for the central banks therefore its necessary to think more about the stability of the global financial system. The simple dependence on conventional monetary policy is not to be abandoned but move to a new frontier thus dealing with Fiscal policy or finding innovative ways to deal more with money and credit. Fiscal policy is more effective policy than the monetary policy therefore it would need financial backing to avoid being in debt (Nanto, 2010).

Policy makers should look for ways in which the government/private financial system can be induced to extend credit to small and medium sized businesses. Smaller businesses are a way of generating employment for people who are out of work, so one has to look on the credit side- new credit channels (public/private).Fiscal policy side, the limitations r primarily political, the public and congress need education to be enlightened on the same and or not expanding employment (Shiller, 2008).

The Global financial crisis has given large number at a high level of analysis, which points at the realization marks that are not necessarily efficient and stable on their own. A belief that keeping inflation low was necessary for maintaining high growth, stable real sector, good economic performance was a wrong ideology, thus bring back Fiscal policy since its effective than monetary policy. To get the economy going through the lessons from the old and new policy would be models used before crisis should be apt and accurate in helping predict a looming crisis for economists (Nanto, 2010).

Therefore, to recover the economy in a robust and a stable way we have to get global growth going thus handling the global system and the global reserve system to figure out and replace the dollar system with global system deemed important. An approach to that is augmenting the I.M.F system to help solve not one, but several problems simultaneously. Education is the resolution for the emerging markets. We need not to measure input, output, and worrying. We need to think of the content of education, what students need to know. Vocational education for students at large would be beneficial. There has not been creation of a more stable financial system, since it draws them back to where the economy was. On focus with banks, Banks know when push comes to shove any large bank will be rescued. Thus, failure to repair the financial system and the vulnerability is our capacity to respond to a financial crisis in the economy is numbed by negligence. Hence, there is need to deal with the risk on a new level (Shiller, 2008).

Short-run policy issues importance of restoring a higher level of economic activities in advanced countries. There will have to be innovative approaches to policy, the simple dependence of conventional monetary policy. This seems to have come to its limits thus move on to direct Fiscal policy or innovative ways related to money and credit. Credit mechanism policy issues mediation between investors and savers and creates credit in productive uses and the current one is still depreciating immensely due to lack of new ideas (Shiller, 2008).

Inflation has been the important policy target but it cannot be the only exclusive focus. That is because there are other factors that are in play that affect stability of financial systems. The emerging markets responded to the crisis extremely well and they have recovered faster than any other countries. They are sustainable. Their rising income is dictated by their demand and their target markets are the vulnerable people who spend half on their income on food. Therefore, emerging markets are being considered in a growing sustainable economy. The middle-income transition in china has the highest exchange rate with fellow neighboring countries (Samuelson, 1980).

Merging the Fiscal situation in the advanced economies will be a problem that will challenge them greatly. The growth of the economy will slow down but the employment aspect will remain a problem. Thus, income distribution and employment will have to be handled separately from growth in order to deal with one economical -financial- aspect at a time. Each country pursuing its own interest does not necessarily lead to the well being of a global economy there is therefore, a need for coordination through the IMF to stimulate people about deficit expansion to elude the economic financial crisis (Nanto, 2010).

Reference:

Nanto, D. K. (2010). “Global Financial Crisis: Analysis and Policy Implications”. New York, NY: DIANE Publishing.

Samuelson, P. A. (1980). “Economics”. New York, NY: Tata McGraw-Hill Education.

Shiller, R. J. (2008). “The subprime solution: how today’s global financial crisis happened, and what to do about it”. New York, NY: PrincetonUniversity Press.