Discussion a solution to the problem of dealing with economic crisis


Most of the foreign assets are denominated in dollars and the value of the currency has further appreciated due to the investors winding off their position. This has led the foreign creditors to pull out their money from the country as the value of their debt is falling with the rising dollar. The values of the homes have dropped drastically due to auctioning and early foreclosures. The government can buy back the foreclosure and sell them at a discount to the construction companies with the condition of not building any new houses. This will put a check to the housing surplus.

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The US trade deficit is very large. This is the result of US corporations outsourcing their production of goods and services. To settle these deficits the countries acquire US based companies, invest in real estate, purchase treasury bonds and invest in derivative instruments like mortgage based securities which are the main reasons for the spread of the financial crisis. These mortgage based securities precipitated the financial crisis. Since many institutions had invested in these instruments which were backed by customers with a bad credit record the default of the customers was inevitable. This calls for the regulation of financial markets. But here also caution should be exercised with regard to over-regulation or wrong regulation. To put a check to the trade deficits steps should be taken for indigenous production of outsourced services. The credit cards should be issued after a thorough scrutiny of the credit history of the applicant. Also, sufficient reserves should be maintained against the rising outstanding. This will prove to be a cushion in case the cardholder defaults in payment. This will also strengthen the banking system.

The government can also lower the tax rates and freezes it for a certain period so that the corporate agencies are encouraged to invest in new avenues.

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