GREAT DEPRESSION IN UNITED STATES

QUESTION

Introduction

Please read carefully the following two statements:

1. “The current global financial crisis presents both significant challenges and opportunities for Australian businesses. Some Australian exporters are finding overseas orders slowing due to falling demand in international markets or because overseas buyers are having difficulty in obtaining appropriate credit. On the other hand, the fall in the value of the Australian dollar is helping to make Australian products more cost competitive in global markets”

(Austrade, 2012)

2. Acting Treasurer Bill Shorten stated that “we’ve got a tough year ahead of us. There are huge challenges in the global economy and these will inevitably impact on our economy”

Source: Rollins, A, 19 January 2012, More rate cuts would boost confidence: Shorten, The Australian Financial Review, 3. Retrieved from

http://www.afr.com/p/national/world_economy_at_risk_of_second_EXqEJObEDIgFrZ7AvsdiBO

Task

You are required to write an academic essay with support from empirical evidence (research data) from academic journals. Non-academic sources such as Wikipedia and Baidu (a version of Google) are not acceptable.

You are required to use at least twelve references and cover the following issues.

The above quotes relate to the current global financial crisis (GFC).

1. Explain what the global financial crisis (GFC) is?

2. How does it affect Australian businesses? What challenges and opportunities may those Australian firms that are operating in the international arena encounter?

3. What would you recommend for managers of those international business operations to do to overcome challenges and take advantage of opportunities?

4. How might the GFC affect Australian businesses which are just beginning to expand their business internationally?

 SOLUTION

Global financial crisis (GFC)

Since the great depression of 1930s, the global financial crisis (GFC) of 2007-2012 is known to be the worst financial crisis which is also called as the late-2000s financial crisis or second great recession, and so are the views of many great economists around the world. This crisis resulted in the collapsing of major financial institutions, banks were bailed out by the governments, and the stock markets around the world faced a huge downturn.  In most of the locations, the housing market or the real estate industry took a hit and resulted in many evictions, foreclosures and even the increase in unemployment, thus contributing to the failure of important industries and turn down in the customer wealth which was approximated at trillions of US dollars, and a noteworthy crisis in economic activity, making way for a ruthless global financial crisis in 2008 (Hilsenrath and Jon, 2009).

The United States banking system had faced a problem with a complex interplay of valuation and liquidity in the year 2008 and this lead to the birth of global financial crisis, which was the cause of crash down of major markets in the U.S. and world. The U.S. real estate market of the U.S housing bubble was bursted in 2007 and this caused the major fall in values of the securities which were linked to this industry and thus damaging the financial institutions of the world. The global stock markets suffered huge losses in 2008 and 2009 where the issues of bank solvency, drops in credit availability and damaged investor beliefs were very prevailing questions. During this period the economies broke down and took major hits in which the international trade declined and the government agencies took front with controlled polices for the national finance and the stimulus got a very measured and appropriate response. The banks were bailed out or had very strict and strong money landing policies which made the market to get tightened further and the trade was very limited with the strong steps from United States government and financial institutions in order to prevent the double dip in the economy. The European Union countries however followed a different strategy and responding differently towards the stimulus of global meltdown in the financial markets which led United Kingdom to take a double dip because of the austerity measures and policies of government (Cooper and George, 2008).

Now when the time came down for investigating the reasons of the crisis then many reports were publishes and these suggested number of causes for the financial crisis in which the Levin-Coburn report was presented in the US Senate and this report suggested that the crisis was a result of high risk, complex financial products, excesses of Wall Street, undisclosed conflicts of interest, failure of regulators, the credit rating agencies, and the role of market itself in its underlying structure.

The crisis was also because of the inefficiency of the government agencies and banks to correctly rate the risks and prices involved with the mortgage products and thus the pricing was not correctly done for these products which made the market more volatile and liberal in terms of being exposed to meltdown. The housing bubble of the United States mortgage industry was bursted because the banks were keener on supplying loans of high fund value to the potential home owners and thus the market prices of the homes and housing industry started to rise which made the market unstable and at last bursted. The housing industry was very booming before the crisis and was because of the reason that the industry was able to receive good amount of fund with low interest rate which was steadily decreasing and was also backed with a high foreign investment and hence the motivation of the investors was high in the 19^th century. This kind of market with a huge investments and a high level of foreign investments was available in the United States and also the risks with the industry were calculated at a low level because of the inefficiency of the government agencies and institutions. Thus the housing industry was booming at a high pace and this led to a balloon which had to burst at some point in the future and thus the bursting of this balloon gave the impact on the financial markets also of United States. This impact on the markets of the United States made the markets of the world take the hit as the markets were interdependent and hence the markets took a high time and crashed together making it the biggest recession of all times (Meltzer and Allan H, 2003).

The investments in the banks and thus increasing their landing capacity was a huge concern for the institutions but they did not had much powers to govern the polices of these banks for lending of money. The mortgage industry of the country grew fragile because of the seemingly low risk and high return in the inevitable crash situation, and thus the firms in the industry regularly increased. The industry had a constitution which made the government to make regulations regarding the freeing of the industry from the jaws of the government regulations which they thought are unnecessarily binding the good business to come through and thus preventing the banks to grow stronger. And as a result even the shadow banking concept took place in which the banks were accompanied by shadow banks which thought that they could take their business to new height in the light of low risk and high return. Now the industry was growing at a faster rate that the foreclosures of loans started taking place and the loans also suffered bad debts and even frauds, which made the banks take the hit and they were bailed out by the government institutions. Now since the government had no control over the landing banks and thus they could not see the future which was cloudy and seemingly dangerous. This future was obvious and was also not seen and was unavoidable by the less prepared bank staff which made the bank takes a high slip and sudden risk making them go downwards, and also the financial market learnt a lesson from it (Shiller and Robert J, 2008).

Affect of GFC on Australian businesses

As the world took a hit from the Global Financial Crisis, so does the Australia and it economy and thus making it difficult for the firms and industries to get the loans and securities from the market, and thus making the country take the most of the crisis to its citizens and foreign nationals who were working in Australia. The firms in Australia are facing a huge challenge for running their business as the country had to face huge crunches in the economy which took lots of dents from the charges of financial crisis overseas.

The Australian government though made the regulations to make the business sense easier and tackle the recession but was still not able to make the most of it and thus the firms still took the financial losses and thus sinking in the sea of economic meltdown.

One of the major impacts of the global financial crisis on the Australian business had been the lack of financial support which means they could not access the market and thus the market supply of financial help in terms of the business loan, securities, and other various forms was stopped now which was the direct result of the financial crisis. Another form of finance which was available to the Australian population and Australian industries was the form in which they have to return the loans and other borrowings to the banks which made them to return at faster rate and at a time where they had no choice but to stop functioning and close the firm (Garrison and Roger W, 1996).

Another impact of the financial crunch on the Australian market was due to lack of finance which made the firms to stop their ongoing projects in between because of the lack of financial support and thus the majority of government and private projects were stopped in between because of lack of financial help and this made the country to suffer a lot since the projects were about to deliver their services to the industry which was clearly a supplier to another industries and hence making the whole economy to take a slow down and thus making it to a close out of the economy  (Woodall and Pam, 2002).

One of the important impacts of the global financial scroll down on the market in Australia was that the investment plans of the major industries were kept on hold once the market was unstable and not providing financial support. Thus the firms which were planning to expand or were looking for investment into other fields of interest had to make their plans to stall for a long time and thus making the people and the industry take a nap at the time when the awakening was most needed. Thus the industry was having a time where people had the money and they dint wish to invest and the people who wanted to expand dint had the money, which result in accumulation of the money at a particular batch of people and thus making it difficult for the economy to sustain growth and thus decline more further (Brunnermeier et al., 2009).

Consequences of the financial crisis were endless and one of these was a huge loss being taken by most of the firms in most industries as they had to take the it with less productivity  or less sales and thus less profit with the figures actually going on the loss side which was even to the double or triple digit losses, even some the banks were gone bankrupt and were sold out with some of them being bailed out by the government institutions and agencies along with they being stopped to expand any further and hence the expansion plans were stopped. This led to a stop on the growth rate of the whole country and thus making it difficult to survive for the foreign companies too in the market too of the Australia and they been taken out by the owner and making them to closing the future ways of investing anymore in Australia.

Some of the brave hearts of many industries in the nation had a huge downtime with them being forced to take off their investment and go back home in a loss. Some people in Australia did setup their business with a huge effort and making it grow to the level of today which were enforced to sell and go bankrupt with actually going back home in the same amount of money with which they started, and thus they saw the times of huge growth with their efforts and seen the time of large and deep decline because of the result of the financial meltdown.

Recommendation for managers

The organisations who are operating into the global market had to take the hit and hence the other organisations who were operating into the global market aware also alarmed of the incoming dangers and hence the managers of such organisations were taking keen and regular steps in order to check for the losses if any due to the global financial crisis.

One of the recommendations for the managers of the firms who are operating in the global market is that they should focus on their human resource capability in terms that they should evaluate their people who are good performers and who are better performers so as to be able to put the responsibilities of high risk on their shoulders and hence reduce the risk. The managers should also evaluate the work force so as to check for the people who will help them in the long run and would make the organisation survive. These people can be evaluated through a third party so as to get the unbiased statement and business sense so as to avoid any undue dangers in the evaluation process since it would be for a very critical work which had to be taken care by the organisation  (Greenwood et al., 2008).

Another step for the managers would be to evaluate the roles which could be taken off the organisation structure so as to streamline and reduce the extra burden of the organisation’s work force. This type of organisation structure will help the managers and leaders to work better and efficient and the firm would be able to make profits out of this cost cutting measure and so that the roles which are highly important can be retained in the organisation. Thus the streamlining of the work structure will help the decision makers to better evaluate the people and their performance (Borio et al., 2003).

An important step would be to retain the existing customers so as to be able to survive in the market and hence prove for the market that you can still survive in the hard times which will work as a positive sign so as to get more customers. This step is critical to your survival as the organisation who will be able to at least survive the tide of hard times will be able to get through and rise in the future when the normal situation return in the market. This survival will also teach the lesson to your organisation as to how to increase and modify the risks and profits of the organisation. These kinds of drills will make you stronger and prepared for the tougher times when the organisation may be washed away you would survive (Vaughn and Karen I, 1994).

As a manager you should look for the new growth sectors which may open as a result of change in the organisation and change in the market and thus posing a risk for the industry and even opening new markets for the people who believe in change. This kind of attitude will give the growth perspective to your organisation which you may wish to pursue after careful examination of all the feasible factors and thus preventing the loss to the organisation. This kind of sector and market which opens as a change in the market will provide the feasibility for diversification for the organisation and also for the closing of any already active segment which is making losses or which should be closed in the view of the management. Thus the new segment will give the replacement for the business and hence proving a step which people would like to pursue for their survival in the organisation and in the market (Taylor and John B, 2007).

As a manager of the firm which is trying to survive the hard time of the recession and the global financial crisis, you should be able to closely monitor you cash flow and funds flow so as to be able to target and prevent any foreseeable risk to the organisation which will provide help in terms of saving important resources to be applied in future to prevent any impact of the financial crisis. This kind of management is very important as the crisis which is the market is of financial nature and the finance is the blood of any business which needs to flow constantly throughout the organisation and in the market so as to be able to make profits of the organisation and make it survive. The cash flow and capital management is important for the business because this will provide you for the position to be able to make decision in time and hence the cost cutting can be put in place whenever needed and hence the organisation will be able to take step of right nature in right time. The market may not be able to give you support which you may need in case you lose out any financial blood in the market because of a bad management or by mistakes of your staff, and thus you may not get the help even if you would be able to return the cash back in short time. Thus it is important for you to make a close look at the cash in your organisation as the organisation may only have the cash which is just sufficient to survive the hard times and losing any part of it may prove fatal to the organisation (Friedman et al.,1963).

GFC affect on newly expanding Australian businesses

One of the major impacts of the global financial crisis on the expanding Australian business had been the lack of financial support which means they could not access the market and thus the market supply of financial help in terms of the business loan, securities, and other various forms was stopped now which was the direct result of the financial crisis. Another form of finance which was available to the Australian population and Australian industries was the form in which they have to return the loans and other borrowings to the banks which made them to return at faster rate and at a time where they had no choice but to stop functioning and close the firm (Mises and Ludwig von, 1998).

Impacts of the financial crisis were endless and one of these was a huge loss being taken by most of the firms in most industries as they had to take the it with less productivity  or less sales and thus less profit with the figures actually going on the loss side which was even to the double or triple digit losses, even some the banks were gone bankrupt and were sold out with some of them being bailed out by the government institutions and agencies along with they being stopped to expand any further and hence the expansion plans were stopped. This led to a stop on the growth rate of the whole country and thus making it difficult to survive for the foreign companies too in the market too of the Australia and they been taken out by the owner and making them to closing the future ways of investing anymore in Australia.

Another impact of the financial crunch on the Australian market was due to lack of finance which made the firms to stop their ongoing projects in between because of the lack of financial support and thus the majority of government and private projects were stopped in between because of lack of financial help and this made the country to suffer a lot since the projects were about to deliver their services to the industry which was clearly a supplier to another industries and hence making the whole economy to take a slow down and thus making it to a close out of the economy (Jarociński et al., 2008).

REFERENCES

1. Borio, Claudio and William R. White. 2003. “Whither Monetary and Financial Stability? The Implications of Evolving Policy Regimes.” In Monetary Policy and Uncertainty: Adapting to a Changing Economy. Kansas City: Federal Reserve Bank of Kansas City, pp. 131–211.
2. Brunnermeier, Markus K. and Lasse Heje Pedersen. 2009. “Market Liquidity and Funding Liquidity,” Review of Financial Studies 22, no. 6: 2201–38.
3. Cooper, George. 2008. The Origin of Financial Crises: Central Banks, Credit Bubbles and the Efficient Market Fallacy. New York: Vintage.
4. Friedman, Milton and Anna Jacobson Schwartz. 1963. A Monetary History of the United States, 1867–1960. Princeton, N.J.: Princeton University Press.
5. Garrison, Roger W. 1996. “Introduction: The Austrian Theory in Perspective.” In The Austrian Theory of the Trade Cycle and Other Essays. Auburn, Ala.: Ludwig von Mises Institute, pp. 7–24.
6. Greenwood, Robin and Stefan Nagel. 2008. “Inexperienced Investors and Bubbles.” NBER Working Paper No. 14111. Cambridge, Mass.: National Bureau of Economic Research.
7. Hilsenrath, Jon. 2009. “Fed Debates New Role: Bubble Fighter.” Wall Street Journal, December 2, 2009: A1.
8. Jarociński, Marek and Frank R. Smets. 2008. “House Prices and the Stance of Monetary Policy.” Federal Reserve Bank of St. Louis Review 90, no. 4: 339–65.
9. Meltzer, Allan H. 2003. A History of the Federal Reserve, Volume 1: 1913–1951. Chicago: University of Chicago Press.
10. Mises, Ludwig von. 1949. Human Action: A Treatise on Economics. Scholar’s Edition. Auburn, Ala.: Ludwig von Mises Institute, 1998.
11. Shiller, Robert J. 2008. The Subprime Solution: How Today’s Global Financial Crisis Happened, and What to Do About It. Princeton, N.J.: Princeton University Press.
    1. Taylor, John B. 2007. “Housing and Monetary Policy.” In Housing, Housing Finance, and Monetary Policy. Kansas City: Federal Reserve Bank of Kansas City, pp. 463–76
    2. Vaughn, Karen I. 1994. Austrian Economics in America: The Migration of a Tradition. Cambridge: Cambridge University Press.
    3. Vogel, Harold L. 2010. Financial Market Bubbles and Crashes. New York: Cambridge University Press.
    4. Woodall, Pam. 2002. “The Unfinished Recession: A Survey of the World Economy.” The Economist, September 28, 2002: 3–28.

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