The Causes of the World Financial Crisis

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The Causes of the World Financial Crisis

Posted by on Jan 31, 2016 in Finance

The Causes of the World Financial Crisis

Since there are industrial mode of production and the market economy, the core of the world economy are spatially move, but has always been subject to economic and financial crises. Recessions and crises as phases of business cycles in the real sector mainly explain the course of time accumulated imbalances in the relationships of the main macroeconomic aggregates, but does not explain why to these imbalances did come. Financial crisis, more frequent and stronger in the XX and XI century have something more precise explanation, but the question is why the financial crisis does not draw lessons for economic policy. A key explanation for the crisis in the real and financial sectors is that they neoclassical economic theory did not recognize, but when they were painfully obvious, her reply was that they were inevitable and even useful. In the neoclassical theory of imbalance in macroeconomics proportions alleged were not possible because the rational behavior of economic agents and the perfect functioning of commodity and factor markets any such imbalance automatically removed.

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The neoclassical theory anticipates the formation of equilibrium prices on commodity markets and prices of factors of production in the respective markets. If the conditions of perfect competition, is guaranteed by the general equilibrium of the economy that does not require the intervention of economic policy.

The conditions of perfect competition in the commodity markets are homogeneous products, a huge number of buyers and sellers who cannot (individually) affect prices, information is perfect (everyone knows all the information on wanted and offered products), all have equal opportunities predictions so that no You can gain a competitive advantage on the basis of above-average good anticipation of the future. The entry of new companies in a particular branch is free and requires low costs. Nobody confers competitive advantage based on technology or proximity to markets as they are in the neoclassical model technology and spatial distance exogenous factors. Not only that products are homogeneous and divisible but also production costs or yields, since a constant in this model there is no internal nor external economies of scale. Decisions are made in conditions of certainty, that the risk of which can be provided.

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On the money and capital market there is an equal awareness of all stakeholders and there is no moral hazard. On the labor market there is perfect competition, no one can request and receive a higher salary than the equilibrium in the market (otherwise remains idle), labor is homogeneous and perfectly mobile.

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