We have a list of financial disasters – The Panic of 1893, The Banker’s Panic of 1907, The Oil Crisis of 1973 and the worst of all, and The Crash of 1929. These disasters have been learning experiences, the hard way and we had assumed that we had come a long way from then with the experiences gained and regulations to protect us from the above. In just a matter of thirty five years from the last financial disaster and seventy years from the Major Crash and Depression, we seem to spiraling downward much the same way and speed. We have faced recessions, unemployment issues fuelled by the deregulation of financial systems. So, what makes this crisis crucial to the economic analysis? We have stringent economic records and this crisis is unprecedented mainly as all forms of investment (excluding Treasury Securities) have had declines of historic proportions. Stocks, Corporate Bonds, Home Prices and Commodities are facing the major brunt of this.

Most of the financial crises have always been due to the onset of a mortgage crisis. This time around, with a severe mortgage crisis, and a strong financial crisis having a global rippling effect the cause of concern is high. To prevent a Great Depression, there is little choice other than the path tread by Roosevelt consisting of massive infrastructure projects, financial regulations and direct support to the defaulting home owners. Though, Bush has invested in a large way, the necessity is such as the inflated values since the crash of 1929 is also high. Obama, has even less choice than to follow the same.

The crisis reached its peak in September, triggered by the mortgage crisis, and becoming destructive with the crash of major financial institutions, thus increasing disharmony and distrust amongst the people of America. It went global with declines in international stock markets and decrease in the prices of commodities. There has been a massive credit crunch accelerating the catastrophe in liquidity.

The IMF has warned that there is a 25% chance of a global recession. The world’s financial firms may shoulder USD 1 trillion worth of losses from the credit crunch, Britain is particularly vulnerable and the growth rate of US for the next year may be at 0.5% to 0.6%, the house crash will get worse in US and Britain. Global financial deceleration remains a possibility.

The governments reinvesting in large amounts and the central banks have provided access to liquidity in swap lines. The IMF is lending to emerging countries that pre-qualify at little or no conditions. It also becomes vital for the government to counteract against the decline in consumption and investments. The current scenario is such that the interest rates are low, the monetary policies are limited but there is a wider space for credible fiscal expansion. The governments must inculcate a strong belief that they will implement it. This step could be a beginning to the end of the crisis.