Aspectos Monetarios Prof. U.Mummert Rodrigo Guajardo O. 16611484-5
[FINANCIAL CRISIS IN EMERGING COUNTRIES, BRAZIL KEYNESIAN RESPONSE]
This report will analyze the effect of the globalfinancial crisis of 2008 in the emerging Brazilian economy and how it was able to mitigate its effects through expansionary monetary and fiscal policy. It demonstrates that through these policies, Brazilwas one of the few economies in the world that came into small run recessive and in turn, was a pioneer in return to the path of growth.
In mid 2008, the United States and theworld at large, went into a deep financial crisis driven by the increasing gap in the mortgage sector of the North American country. The blow to the liquidity of financial institutions led to theinability to meet in short and medium obligation terms resulting in a wave of panic around the world. The hard cut to the liquidity was triggered by a financial bubble caused by the boom in subprime loansgiven the prevailing low interest rates since the attack on the Twin Towers in September 2001. For the year 2006, subprime loans reached U.S. $ 600,000 million. The high profitability in these types ofloans was mainly driven by the steady increase in the price of residential housing in addition to the attractive differential between active and passive interest rate. The regrouping of these loans andselling them as financial instruments that allow investors around the world to participate in the business. The problem arises when the U.S. Federal Reserve (Fed) starts to raise interest rates toinflationary pressures. The higher cost of credit had a negative impact on current mortgage payments which resulted in lower levels of capitalization of financial institutions (Machinea, 2009). Giventhe increased uncertainty and reduced mortgage lending, housing prices plummeted causing irreversible losses in many banks and financial institutions, triggering the bankruptcy of them. The result was...