Global Financial Crisis on Australia
Global financial crisis is a time period in which extreme stress had been faced by the global financial markets as well as the banking sector between the years 2007 to year 2009. During the global financial crisis, a downturn in the housing market of UK was a channel mainly for the financial crisis which spread from the market of United States to the global market and the global financial system. Due to the GFC, many of the banks and the financial institutes have faced huge loess and relied on the reserve banks and the government to avoid the situation of bankruptcy (O’loughlin, Humpel & Kendig, 2010). The global financial crisis had become the reasons for the higher unemployment rate because various people have lost their jobs in order to manage the financial position by the companies and save from the great depression.
The global financial crisis of 2008 was the great depression position for the global market after the year of 1930. The recovery from the global financial crisis of 2008 was quite slower than the earlier recession which was not related to the financial risks. The global financial crisis impact on the Australian market had been studied along with the policies which have been made by the Australian government to resolve the issues of financial crisis in the Australian economy and stabilize the economical performance of the business. Mainly, the causes of GFC were excessive risk taking in the favourable environment, huge borrowings from the investors and banks, Policy errors as well regulation errors etc. the main focus of the essay is on the Australian market and the economical position of Australia. The Australian economy had been hit hard by the global financial crisis (Chor & Manova, 2012). Though, while facing difficult times due to GFC, the Australian economy was one of the few economies who were doing better than almost all the advanced and developed economies.
It is the main focus of the essay to discuss the impact of the global financial crisis on the Australian economy and the Australian government’s response on the global financial crisis. GFC had hit hardly on the Australian economy and due to it the economical performance of the country was hampered. However, the Australian government had somehow managed to perform well in the global financial market.
As much for the world, in the Australian economy, the key turning point was in the mid September 2008 when the Lehman brothers collapse. The affect of financial crisis was not affected that particular time even it had started few months before, but the collapse had made great affect on the Australian economy. There were huge signs of global financial crisis. In the Australian economy, a considerable discussion had been done by the PM and other ministry to avoid the financial crisis (Fidrmuc & Korhonen, 2010). The financial minister, prime minister and other treasures had collected the information of US and Europe and the impact of global financial crisis on those countries to make the better policies to reduce the impact of GFC.
Policies of Australian Government to Stabilize the Economy
After the collapse of Lehman brothers, the GFC affected at huge level on the Australian economy. The credit provisions of the Australian market have been dried up around the business and world confidence plunged. It was huge expected that the GFC would lead to each business and the bank into the bankruptcy level but most of the financial institution and business had responded quickly to crisis by slashing the production level and reduce the level of inventories in the business. According to the reports, at the end of year 2008, companies have run down their business and stocks by $ 3.4 billion which was the largest fall on the records of the Australian reports (Reserve bank of Australia, 2018).
The confidence of the consumers had been improved along with the consumptions of the products. Throughout the October and September month, the financial crisis had spread from the US to Europe market and all over the world economies which have began to contract. The global financial crisis’s cause was huge which had affected entire western economies. It results in offering too much loan to the citizen who was not even able to afford to pay the packaging up of loans. The bad investment, greed of the people, increment in the property price, huge spread of income distribution and the poor regulations and policies have contributed in the global financial crisis.
The Australian government had taken the credit to avoid the recession by implementing the theory of monetary and fiscal policies. The main aim of the theories was to stimulate the average demand of the products through improving the consumption and the investment expenditure of the business (Reinhart & Rogoff, 2009). The resulted stimulus had been compared to the other contributions in order to change the GDP expenditures which were not the major contributor to ignore the recession and the crisis in the Australian economy.
Net exports were the major significant contributor in the GFC. It explains that none of these policies and the regulations had helped the Australian economy to avoid the crisis. The net exports have contributed at huge level in order to the national income measurements in the Australian economy. The Australian government did not experience huge downturn into the economical and financial crisis in the economy during the global financial crisis. However, the pace of growth into the economical performance had slow down rapidly, the increment had been seen in the unemployment rate of the business and an uncertainty had also been seen in the Australian economy (Sargent-Cox, Butterworth & Anstey, 2011). The relative string performance in the financial system and the Australian economy during the GFC had been compared with the other advanced and developed countries and the reasons behind this fact are as follows:
- Australian bank had small exposure to the US banks and the US housing market which was partly due to the fact that the Australian market was enough profitable.
- The economy of Australia was buoyed by the large resources which are exported from the china market whose economy had been rebounded significantly and quickly after the global financial crisis. This was mainly because of the fiscal policies of the country.
- High risk loans and the subprime was only a small share of lending in the Australian economy which was partly due to the historical focus on the Australian baking regulator’s lending standards and the Australian prudential regulation authority (Reserve bank of Australia, 2018).
Conclusion
Despite the Australian financial system, the other factors of the economy had also been discussed which had impacted on the large policy response in the Australia and slow down the business of the Australian market. The research bank of Australia had lowered he cash rate significantly and an under look expansionary in the fiscal policy had been taken by the Australian government in order to slow down the decrement rate in the Australian economy.
In order to manage the economical performance and other factors of the Australian government which had been affected by the global financial crisis, the Australian government had made changes into the following policies so that the economical performance could be stabilized.
- On May, 20, the Australian government had announced, on the basis of the treasurer authority, to increase the issue of commonwealth government securities. The government had decided to improve by securities by $ 25 billion to ensure the operations of the Australian market smoothly. It had boosted the range of the assets which the Australian officer of financial manager (AOFM) could invest in to expand the lending facilities of the business (Rudd, 2009).
- On 2ndJune, the treasure had outlined the response of the Australia to the recommendation of the financial stability forum in order to enhance the resilience of financial institution and financial markets. It contain the introduction of the legislation to establish the financial crisis scheme to offer the general insurance and depositors a timely access to their funds in order to avoid the financial market and banking failure and it also changes the regulatory framework which allows the better management of the banks and the financial institutions (Australian government, 2018).
- On 3rdof July, the COAG (Council of Australian government) agreed to measure the policies in order to strengthen the protection of the consumers of financial products across the Australian government along with the commonwealth bank to take over the responsibilities for the mortgages, margin lending, mortgage broker etc. On the 2nd Oct, Council of Australian government endorsed the implementation plan in order to regulate the remaining areas of the consumer credits.
- On 19thSept, the Australian stock exchnage (ASX) had made the changes into it’s authorise product list in an efficient manner to prohibit the naked short sale of the securities not otherwise it was allowed by the corporations act, 2001. On the date of 21st Sept, the Australian securities and investment commission had banned the short selling on the stock of 30 days which had been extended to 18th November subsequently (McKibbin & Stoeckel, 2010). On the date of 23rd Sept, further, the government had released the draft legislation on the agreement of disclosure of covered short sales.
- Further, on the date of 26thSept, the Australian government had announced its intention to purchade worth of $ 4 billion of residential mortgage securities in order to support the competition in the market for housing finance which had been followed the disclosure of the Australian residential mortgage backed securities (Treasury government, 2018). According to the reports, at the end of year 2008, companies have run down their business and stocks by $ 3.4 billion which was the largest fall on the records of the Australian reports.
- Net exports were the major significant contributor in the GFC. It explains that none of these policies and the regulations had helped the Australian economy to avoid the crisis. The net exports have contributed at huge level in order to the national income measurements in the Australian economy (McKibbin & Stoeckel, 2010). The Australian government did not experience huge downturn into the economical and financial crisis in the economy during the global financial crisis. However, the pace of growth into the economical performance did slow rapidly, the increment had been seen in the unemployment rate of the business and an uncertainty had also been seen in the Australian economy.
- While the impact of the global financial crisis, the credit provisions of the Australian market have been dried up around the business and world confidence plunged. It was huge expected that the global financial crisis would lead to the Australian market and each business and the bank into the bankruptcy level but most of the financial institution and business had responded quickly to crisis by slashing the production level and reduce the level of inventories in the business.
- The Australian government had also worked with the international counterparts in order t evaluate and reform the global financial architecture to ensure that such kind of activities have not taken place again the Australian market. The treasure had joined the meetings of the G-20 and IMF in the month of mid-Oct to resolve the impact and improve the economical performance of the Australian market (Reinhart & Rogoff, 2008).
- The global financial crisis’s cause was huge which had affected entire western economies. It results in offering too much loan to the citizen who was not even able to afford to pay the packaging up of loans. The bad investment, greed of the people, increment in the property price, huge spread of income distribution and the poor regulations and policies have contributed in the global financial crisis.
- The confidence of the consumers had been improved by the Australian government along with the consumptions of the products. So that, the overall performance and the position of the Australian market could be improved. That would lead to the lower impact of the global financial crisis on the Australian economy and such kind of events does not take place again the market.
- Throughout the October and September month, the financial crisis had spread from the US to Europe market and all over the world economies which have began to contract and due to which the Australian economy, prime minister and the treasure fund of the country had decided to held a meeting with the other government and prime minister of the developed countries to set better policies for the country (Claessens, Dell’Ariccia, Igan & Laeven, 2010).
- The treasure had joined the meetings of the G-20 and IMF in the month of mid-Oct along with the prime ministers of G 20 leaders, central bank governors etc in Washington on the date of Nov 15, 2008 to advance the international corporation in order to respond to the global financial crisis.
- The Australian government had taken the credit to avoid the recession by implementing the theory of monetary and fiscal policies. The main aim of the theories was to stimulate the average demand of the products through improving the consumption and the investment expenditure of the business (Peters et al, 2012). The resulted stimulus had been compared to the other contributions in order to change the GDP expenditures which were not the major contributor to ignore the recession and the crisis in the Australian economy.
On the basis of the policies of the Australian government, it had been found that the Australian government had implemented various policies and the strategies to avoid the financial crisis.
Conclusion:
After the evaluation on the global financial crisis, its impact and the policies which had been made by the Australian government to stabilize the Australian economy, it had been concluded that it was one of the biggest financial crisis which had affected the Australian economy at huge level. The impact was lower against the other countries but due to this crisis, a great decrement had been seen in the demand and the inventory level of the business. After measuring the policies of the Australian government, it had been found that the Australian government had implemented various policies and the strategies to avoid the financial crisis. However, the Australian government had not succeeded to reduce the total affect of the global financial crisis on the economical performance.
To conclude, the Australian government had tried hard and due to the reduction in the high risk loans, the little share of lending loans, great loan and lending policies of the Australian government and reserve bank of Australia, the impact of GFC was less in the Australian economy. The Australian baking regulator’s lending standards and the Australian prudential regulation authority were quite significant which had reduced the level of bankruptcy in the Australian market.
References:
Australian Government. (2018). Budget 2008-09. [online]. Retrieved from: https://www.budget.gov.au/2008-09/content/myefo/html/part_2.htm
Chor, D., & Manova, K. (2012). Off the cliff and back? Credit conditions and international trade during the global financial crisis. Journal of international economics, 87(1), 117-133.
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Reserve bank of Australia. (2018). Global financial crisis. [online]. Retrieved from: https://www.rba.gov.au/education/resources/explainers/the-global-financial-crisis.html
Rudd, K. (2009). The global financial crisis. Monthly, The, (Feb 2009), 98(2), 339-44.
Sargent-Cox, K., Butterworth, P., & Anstey, K. J. (2011). The global financial crisis and psychological health in a sample of Australian older adults: a longitudinal study. Social science & medicine, 73(7), 1105-1112.
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