Financial Turmoil Research Paper
The financial turmoil
Shivananda Venkata Reddy
Texas A & M
Date:02/22/2017
The causes of the next financial turmoil in the US
The economic crisis that engulfs the US started in early 2007 with the leading mortgage lending market. In the beginning, the indicators of the problems began with the abolition of high-risk purchase mortgages by Federal Loan Mortgage Corporation. In the second lender, New Century Financial Corporation risks filed for bankruptcy. 5 The crisis set in as the prices of housing fell, and many foreclosures increased drastically. The credit rating agencies downgraded their risks evaluation of financial instruments in the early 21st century. The risk restricted the issuer's capability of the commercial products …show more content…
in paying interests and thus the realization of the bursting credit bubble and US housing entailing the unexpected losses 9.
Many things have changed since the beginning of the financial crisis of 2007. In the recent past, there is a shift in the political manifestation of the country. With the last election, there are reforms in trade, immigration, and foreign policies. At the global stage, the world economic recession affects the emerging and developing nations while developed nations like America impacts are domestic.8 The history of America's economic downturn can be traced during the Second World War while the great recession was out of hand. The paper, therefore, examines the causes of the next financial crisis in the US with the implementations of the changes since the inception of the current administration.
The causes
Since the first financial crisis, the countercyclical responses help salvage the economy and strengthen the market.
In the recent past, the previous administration and the current administrators are formulating policies that are directly touching the financial market, trade, and regulations.2 The US economy accelerates at a slow rate during the second stint of the former President Obama. Debts, Republican aversion, and public spending are the measure of the future direction of the world most powerful nation. The trend in the politics shows that the Republicans are for relaxing debt limits while spending more on the social amenities. Since the era of Ronald Reagan, Bush and Obama, the formulation of the Keynesian fiscal stimulus implementation has not been possible 8. The deficit in the resulting unable to implement refers to as ‘supply-side economics.' Therefore, the causes of the future turmoil …show more content…
are:
a) Tax reforms
According to Jorgenson, Dale, Mun, and Jon 2013, most of the governments generate revenues through taxes and customs duties.7 However; the regulations attract or repel the investors and multinationals from investing in the country. Harker 2017 argues that there are more threats and immediate massive tax cuts thereby boosting the public spending in the realization of the employments and reviving the industries.10 The result will be higher interests, accelerated inflations and at times the combination of both. Given the measures to block the immigrant's workers from the Muslim-dominated nations, Mexico, and other security threat countries, the long-term interest rates could turn out to be dramatic.1 Moreover, there is trade protectionism in the recent past.5 Since the turn of 2017, there is revocation of AGOA pact, Trans-Pacific Partnerships, and the abolition of most imports from China will have an adverse impact on the economy in the future. The financial markets in the States will be troublesome despite the aggressiveness with the monetary policy to contain price increase. In the next couple of years, the economy will ‘run hot' allowing the living conditions unbearable 6.
b) Decline in the Dollar value
According to Bibow 2010, the US has a lot of debts from domestic and foreign lenders.2 At the moment, the economy is growing at an alarming rate while the long-term interest rates of the debts are growing two-fold. There is nothing stress in a country like strengthening the currency after a recession.10 At the moment, the rising growth has spurred the dollar at higher levels, but the wake of the repayment of the debts with inflated interest will spell doom to the Superpower.6 In the 1980s and 1990s, the government faced a situation where the debt accumulated in the emerging economies tempting the federal government and its companies to pay heavily to zero-rate the interests. The looming challenge is directing the country into such situation 3.
c) Market changes
The US global leadership is changing from the agreements, block, and treaties to open markets, free trade, and globalizations. In reality, even the financial advisors are not in a position to predict the full consequence of the biggest system shifts in the economic management 3. Since the 80s, the only sure thing the overhaul change indicates the negative direction to the multinationals and emerging economies. The nations advocating for open capital flows and free trade in their business strategies and development models are doomed to fail. Following the footsteps of the previous examples, the country will set a dangerous tone for her economy soon.7
d) Foreign financing
The combination of protectionism and dollar squeeze spells a big trouble to the less developed nations. Such governments are heavily reliant on donations, grants, and duty exemption on exports into the country 4. The free trade, as well as foreign financing, allows the nations to develop her infrastructures, upgrade their living standards, and increase the GDP. It is clear that the current administration is unsupportive to the oversea financing but rather concentrating on the home growth.8 It is the phrase ‘let makes America great again' that summarizes the trend in the withdrawal from various signatories. The developed nations with closed economies and less dependent on foreign help and free trade are strategically cushioned from the economic shocks looming 6.
e) Infectious effect on Europe
In Europe and especially Britain as country withdrew from the European Union recently. The Brexit has shown the populist setting in in the European countries. With the British actions, the US historically chose a populist president in Trump.4 It is known that the populist upheavals were behind the European crisis experience on the continent in the past. With the populist ideas in the current administration, the country is likely to follow the steps that buried the economy of the European countries during the shocks 9. The globalists hope for the opposite to happen but the current facts summarize the problem that looms ahead of the super power. The one time cold relations with Russia are warming up, and the administration is embracing the ideas and strategies that used in the mineral-rich Asian country. There are differences in the regulations and enforcements in the two different countries thus adoption of their policies will direct the nation into the dogs 10
In conclusion, the US next financial shock is looming, and the recent reforms in trade, immigration, populism, and protectionism determine the economic future of the nation. In the last few centuries, the world has experienced economic turmoil like great depression and the European crisis that had dire consequences for the American economy. Reforms and new legislations since the leadership of Ronald Reagan to the present day Donald Trump is doing little to curb the rising debts, spending, and foreign policies. In precision, the country is enjoying short-term geopolitical stability, ‘sensible tax reforms,' deregulations of environmental and energy laws, and traditional promotions.
f) Skill Foreign labor and Students
Computer and Information Technology companies are long dependent on workers from abroad for technological growth are preparing for immigration reforms that could affect a large work force. A Google search of several American startups like Uber, Tesla and Palantir were co founded by Foreign born enterprisers. President Trump made immigration reforms as Key factor during his campaign and has frequently pointed out the H1B Visa program for skilled workers11. This new political changes may lead to change in H1B reforms. Some senators have even introduced a bill which would raise the minimum salary from $60,000 to $100,000 which they feel will eliminate lower pay package which is favored by US companies. Such policies are in line with the Trump administration to prevent foreign workers from taking up US jobs. These policy makers believe that these bills ensure that American employers have access to the talent they need , while removing the incentives they need for companies to undercut the American wages and outsource jobs. Hence it needs to be acknowledged that some of the proposals being implemented by Trump administration will in turn lead to a financial turmoil as a good part of Silicon valley's profitability hinges on the lower wages paid to H1B holders that it imports from other countries. Many foreign students and faculty at various US universities are among those who are caught in the immigration reforms policies. Many IT students come to the country from overseas in search of good education and a better paying jobs once they complete their studeis.US colleges could lose up to $700 million by the proposed immigration changes12. These policies can sound alarm bells for the job security of the faculty who teach in US Universities.
Hence all these factors play a significant role in causing the next financial crisis in United states and needs to be addressed as early as possible
References
1.
Akyüz Y. Policy Response to the Global Financial Crisis: Key Issues for Developing Countries. triplecrisis.com/wp-content/uploads/2010/03/AkyuzGEPSC.pdf May 15, 2009.
2. Bibow J. Global Imbalances, the U.S. Dollar, and how the crisis at the core of global finance spread to "self-insuring" emerging market economies. Levy Economics Institute Working Paper, No. 591. www.levyinstitute.org/pubs/wp_591.pdf June 13, 2010.
3. Cohan, William D. Why Wall Street Matters. https://www.ft.com/content/ce216134-e6c7-11e3-9a20-00144feabdc0 Feb 16, 2017
4. Eichengreen, Barry J. Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System www.unescap.org/sites/default/files/Book-Review-5-May-2012.pdf 2012
5. Gordon, Robert J. "Is U.S. Economic Growth Over? Faltering Innovation Confronts the Six Headwinds." https://ideas.repec.org/r/nbr/nberwo/18315.html 2012.
6. Harker, Patrick. "The U.S. Economy in 2017: Why Uncertainty Is the ‘Biggest Risk' The University of Pennsylvania. knowledge.wharton.upenn.edu/.../the-u-s-economy-in-2017-why-uncertainty-is-the-b. Jan 6, 2017.
7. Jorgenson, Dale W., Mun S. Ho, and Jon D. Samuels. "Economic Growth in the Information
Age. studylib.net/doc/18314641/the-future-of-us-economic-growth Feb 22, 2013.
8. Okawa, Ryuho. The Trump Card in the United States: Spiritual Messages from the Guardian Spirit of Donald Trump. https://www.amazon.com/Trump-Card-United-States-Spiritual/dp/1943869030 March 17, 2016.
9. UNCTAD. The global economic crisis: Systemic failures and multilateral remedies. Report by the UNCTAD Secretariat Task Force on Systemic Issues and Economic Cooperation. https://books.google.com/books?isbn=184980667 November 2009.
10. Yastine, J. L. "80% Stock Market Crash to Strike in 2017, Economist Warns. thesovereigninvestor.com/exclusives/80-stock-market-crash-to-strike-in-2016/ January 30, 2017
11. Hansen,Louis. H1b visa program faces uncertain future in the trump era. The Mercury News, 23 Jan. 2017
12. CollegeFactual, Team. How trumps executive order affects Thousands of international students in the US. Inside College Factual, 31 Jan 2017.
Shivananda Venkata Reddy
Texas A & M
Date:02/22/2017
The causes of the next financial turmoil in the US
The economic crisis that engulfs the US started in early 2007 with the leading mortgage lending market. In the beginning, the indicators of the problems began with the abolition of high-risk purchase mortgages by Federal Loan Mortgage Corporation. In the second lender, New Century Financial Corporation risks filed for bankruptcy. 5 The crisis set in as the prices of housing fell, and many foreclosures increased drastically. The credit rating agencies downgraded their risks evaluation of financial instruments in the early 21st century. The risk restricted the issuer's capability of the commercial products …show more content…
in paying interests and thus the realization of the bursting credit bubble and US housing entailing the unexpected losses 9.
Many things have changed since the beginning of the financial crisis of 2007. In the recent past, there is a shift in the political manifestation of the country. With the last election, there are reforms in trade, immigration, and foreign policies. At the global stage, the world economic recession affects the emerging and developing nations while developed nations like America impacts are domestic.8 The history of America's economic downturn can be traced during the Second World War while the great recession was out of hand. The paper, therefore, examines the causes of the next financial crisis in the US with the implementations of the changes since the inception of the current administration.
The causes
Since the first financial crisis, the countercyclical responses help salvage the economy and strengthen the market.
In the recent past, the previous administration and the current administrators are formulating policies that are directly touching the financial market, trade, and regulations.2 The US economy accelerates at a slow rate during the second stint of the former President Obama. Debts, Republican aversion, and public spending are the measure of the future direction of the world most powerful nation. The trend in the politics shows that the Republicans are for relaxing debt limits while spending more on the social amenities. Since the era of Ronald Reagan, Bush and Obama, the formulation of the Keynesian fiscal stimulus implementation has not been possible 8. The deficit in the resulting unable to implement refers to as ‘supply-side economics.' Therefore, the causes of the future turmoil …show more content…
are:
a) Tax reforms
According to Jorgenson, Dale, Mun, and Jon 2013, most of the governments generate revenues through taxes and customs duties.7 However; the regulations attract or repel the investors and multinationals from investing in the country. Harker 2017 argues that there are more threats and immediate massive tax cuts thereby boosting the public spending in the realization of the employments and reviving the industries.10 The result will be higher interests, accelerated inflations and at times the combination of both. Given the measures to block the immigrant's workers from the Muslim-dominated nations, Mexico, and other security threat countries, the long-term interest rates could turn out to be dramatic.1 Moreover, there is trade protectionism in the recent past.5 Since the turn of 2017, there is revocation of AGOA pact, Trans-Pacific Partnerships, and the abolition of most imports from China will have an adverse impact on the economy in the future. The financial markets in the States will be troublesome despite the aggressiveness with the monetary policy to contain price increase. In the next couple of years, the economy will ‘run hot' allowing the living conditions unbearable 6.
b) Decline in the Dollar value
According to Bibow 2010, the US has a lot of debts from domestic and foreign lenders.2 At the moment, the economy is growing at an alarming rate while the long-term interest rates of the debts are growing two-fold. There is nothing stress in a country like strengthening the currency after a recession.10 At the moment, the rising growth has spurred the dollar at higher levels, but the wake of the repayment of the debts with inflated interest will spell doom to the Superpower.6 In the 1980s and 1990s, the government faced a situation where the debt accumulated in the emerging economies tempting the federal government and its companies to pay heavily to zero-rate the interests. The looming challenge is directing the country into such situation 3.
c) Market changes
The US global leadership is changing from the agreements, block, and treaties to open markets, free trade, and globalizations. In reality, even the financial advisors are not in a position to predict the full consequence of the biggest system shifts in the economic management 3. Since the 80s, the only sure thing the overhaul change indicates the negative direction to the multinationals and emerging economies. The nations advocating for open capital flows and free trade in their business strategies and development models are doomed to fail. Following the footsteps of the previous examples, the country will set a dangerous tone for her economy soon.7
d) Foreign financing
The combination of protectionism and dollar squeeze spells a big trouble to the less developed nations. Such governments are heavily reliant on donations, grants, and duty exemption on exports into the country 4. The free trade, as well as foreign financing, allows the nations to develop her infrastructures, upgrade their living standards, and increase the GDP. It is clear that the current administration is unsupportive to the oversea financing but rather concentrating on the home growth.8 It is the phrase ‘let makes America great again' that summarizes the trend in the withdrawal from various signatories. The developed nations with closed economies and less dependent on foreign help and free trade are strategically cushioned from the economic shocks looming 6.
e) Infectious effect on Europe
In Europe and especially Britain as country withdrew from the European Union recently. The Brexit has shown the populist setting in in the European countries. With the British actions, the US historically chose a populist president in Trump.4 It is known that the populist upheavals were behind the European crisis experience on the continent in the past. With the populist ideas in the current administration, the country is likely to follow the steps that buried the economy of the European countries during the shocks 9. The globalists hope for the opposite to happen but the current facts summarize the problem that looms ahead of the super power. The one time cold relations with Russia are warming up, and the administration is embracing the ideas and strategies that used in the mineral-rich Asian country. There are differences in the regulations and enforcements in the two different countries thus adoption of their policies will direct the nation into the dogs 10
In conclusion, the US next financial shock is looming, and the recent reforms in trade, immigration, populism, and protectionism determine the economic future of the nation. In the last few centuries, the world has experienced economic turmoil like great depression and the European crisis that had dire consequences for the American economy. Reforms and new legislations since the leadership of Ronald Reagan to the present day Donald Trump is doing little to curb the rising debts, spending, and foreign policies. In precision, the country is enjoying short-term geopolitical stability, ‘sensible tax reforms,' deregulations of environmental and energy laws, and traditional promotions.
f) Skill Foreign labor and Students
Computer and Information Technology companies are long dependent on workers from abroad for technological growth are preparing for immigration reforms that could affect a large work force. A Google search of several American startups like Uber, Tesla and Palantir were co founded by Foreign born enterprisers. President Trump made immigration reforms as Key factor during his campaign and has frequently pointed out the H1B Visa program for skilled workers11. This new political changes may lead to change in H1B reforms. Some senators have even introduced a bill which would raise the minimum salary from $60,000 to $100,000 which they feel will eliminate lower pay package which is favored by US companies. Such policies are in line with the Trump administration to prevent foreign workers from taking up US jobs. These policy makers believe that these bills ensure that American employers have access to the talent they need , while removing the incentives they need for companies to undercut the American wages and outsource jobs. Hence it needs to be acknowledged that some of the proposals being implemented by Trump administration will in turn lead to a financial turmoil as a good part of Silicon valley's profitability hinges on the lower wages paid to H1B holders that it imports from other countries. Many foreign students and faculty at various US universities are among those who are caught in the immigration reforms policies. Many IT students come to the country from overseas in search of good education and a better paying jobs once they complete their studeis.US colleges could lose up to $700 million by the proposed immigration changes12. These policies can sound alarm bells for the job security of the faculty who teach in US Universities.
Hence all these factors play a significant role in causing the next financial crisis in United states and needs to be addressed as early as possible
References
1.
Akyüz Y. Policy Response to the Global Financial Crisis: Key Issues for Developing Countries. triplecrisis.com/wp-content/uploads/2010/03/AkyuzGEPSC.pdf May 15, 2009.
2. Bibow J. Global Imbalances, the U.S. Dollar, and how the crisis at the core of global finance spread to "self-insuring" emerging market economies. Levy Economics Institute Working Paper, No. 591. www.levyinstitute.org/pubs/wp_591.pdf June 13, 2010.
3. Cohan, William D. Why Wall Street Matters. https://www.ft.com/content/ce216134-e6c7-11e3-9a20-00144feabdc0 Feb 16, 2017
4. Eichengreen, Barry J. Exorbitant Privilege: The Rise and Fall of the Dollar and the Future of the International Monetary System www.unescap.org/sites/default/files/Book-Review-5-May-2012.pdf 2012
5. Gordon, Robert J. "Is U.S. Economic Growth Over? Faltering Innovation Confronts the Six Headwinds." https://ideas.repec.org/r/nbr/nberwo/18315.html 2012.
6. Harker, Patrick. "The U.S. Economy in 2017: Why Uncertainty Is the ‘Biggest Risk' The University of Pennsylvania. knowledge.wharton.upenn.edu/.../the-u-s-economy-in-2017-why-uncertainty-is-the-b. Jan 6, 2017.
7. Jorgenson, Dale W., Mun S. Ho, and Jon D. Samuels. "Economic Growth in the Information
Age. studylib.net/doc/18314641/the-future-of-us-economic-growth Feb 22, 2013.
8. Okawa, Ryuho. The Trump Card in the United States: Spiritual Messages from the Guardian Spirit of Donald Trump. https://www.amazon.com/Trump-Card-United-States-Spiritual/dp/1943869030 March 17, 2016.
9. UNCTAD. The global economic crisis: Systemic failures and multilateral remedies. Report by the UNCTAD Secretariat Task Force on Systemic Issues and Economic Cooperation. https://books.google.com/books?isbn=184980667 November 2009.
10. Yastine, J. L. "80% Stock Market Crash to Strike in 2017, Economist Warns. thesovereigninvestor.com/exclusives/80-stock-market-crash-to-strike-in-2016/ January 30, 2017
11. Hansen,Louis. H1b visa program faces uncertain future in the trump era. The Mercury News, 23 Jan. 2017
12. CollegeFactual, Team. How trumps executive order affects Thousands of international students in the US. Inside College Factual, 31 Jan 2017.