The global financial crisis may just now be labeled as a crisis but the truth is that it has been brewing for many years. The current financial crisis in part stemmed from a shortfall in the United States financial banking system. This shortfall resulted in the collapse of many financial institutions, downturns in stock markets all over the world, a collapse of housing markets and an overall damage to the economic stability of institutions as well as individual wealth. In turn these factors affected the global economy as a whole.

It is not uncommon that following a period of stability and economic boom that the scales start tipping the other way. Signs of global instability starting to become shaky began back in the early 2000’s when a few significant signs of economic unrest began to surface.

Signs of a Financial Crisis

While people are concerned about specific issues that affect their country, the truth is that the concerns in one country are not isolated. The world today is so intertwined that a crisis in one country can have a ripple effect on the rest of the world. Economies today are so interconnected that a collapse of a financial institution in the United States is sure to have a significant effect on the financial system in Australia in more than one way. Most crises do not happen overnight but rather problems tend to simmer until they bubble up and boil over. Looking back on the past few years there are a few tell tale signs that a global financial crisis was in the near future.

• Falling stock markets

• Increasing market prices

• The collapse or buyout of large financial institutions

• Government bail outs

• A downturn in the housing market

• Close of businesses

• Decline in economic activity

The Role of the United States in the Financial Crisis

The turbulence in the United States real estate market that began a few years back is one of the major contributors to the global financial crisis. America had a big property boom back in the early 2000’s. This boom lead to the increase in real estate prices and the banks developed what was called sub-prime lending. The sub-prime lending trend was a phase where banks began lending money to low income or unemployed people who in the past were not eligible for loans because they could not afford to pay off the life of the loan. It turned out that many people who borrowed were unable to pay these loans back resulting in foreclosure and bankruptcy for many. This left the banks holding these unpaid loans Banks all over the world ended up loosing billions and trillions of dollars that could not be recouped. This was and continues to be major shock to the global financial systems.

Global Trade

It is true that financial institutions play a heavy role in the financial success or failure of a country. A countries affluence and power depends primarily on its ability to sustain wealth. The global trade system relies upon markets to determine the prices of goods and services as well as allocate the necessary resources. Global trading is what many countries rely on sustain themselves. When a financial crisis effects one part of the world such as China or the United States it directly effects cost, price and available of goods and services around the world. An economic downturn in one country can significantly affect the financial stability of much another area in the world, especially if there is heavy trade between countries.

Australia

Australia is highly dependent on global trade to sustain itself. When people are afraid they spend less and this affects the demand for certain products. If housing and food prices are high and job loss is high, people tend to invest less and spend less, banks lend less and increase interest rates for pre-existing borrowers, and this in turn has a ripple effect on the rest of the world, especially those countries that are highly depended on international trade. The fall of the Australian dollar has actually helped the country to maintain a level of cost competitiveness in the global market place.

The world has seen difficult financial times in the past and is sure to see hard times again in the future. During times such as these where the global market is affected it is best for individuals as well as businesses to monitor investments closely. Rather than looking to grow refocus instead on maintaining efficiency and cutting costs while improving performance in the areas that matter.