This essay aims to discover fundamental economic reasons of the financial crisis in the United States while also determining the possible solutions to the crisis.
It is shown in the essay, that the capitalism approach that the U.S follows promotes free flow of labour, capital and technology. This process can affect America negatively and positively. Every country wants to grow and excel in fields of technology and economic growth. If America wants to maintain its position as the leading economy in the world, it needs to compete head to head with its rivals, striving to improve itself in every aspect. If it fails to do so quickly, it may find one of its rivals, such as China, India or even Japan, at the top of the list, with itself as a competitor that needs to step up its game.
There are many reasons of the recession. The long lasting boom in the housing market in the U.S., the deficit on the balance of payments in America, the lending of capital by the U.S., the loose monetary policy that the central bank of the U.S. implemented, the high ratio of the debts the U.S. had in comparison to its income, coupled with many other reasons, brought about the recession
The pegged exchange rate that China follows has developed a significant deficit in the current account of America’s balance of payments, which has slowed down the growth of America’s economy. China’s progress in technology has also contributed to this crisis, since it is a cheaper alternative to the products of America. India too has a role to play in this crisis.