Banking crises could also lead to a currency crises. Large fiscal deficits could lead to a worsening in the current account position, which could in turn put pressure on the exchange rate. Foreign recessions could spill over to domestic economies and lead to domestic recessions. High world oil prices are a danger to the current account position, and also could lead to domestic recessions. High interest rates around the world often budge at capital outflows (Element 1). For many East Asian countries, the drop of the Japanese yen against the US dollar can put other neighboring currencies under pressure. Another effect was September 11, 2001 since the attacks lead to a jump in oil prices in early 2003 that later stayed in trend while our dollar value …show more content…
Many other analysts have also warned us of a downfall in our economy worse than the one in 2008. According to several economic indicators, the downturn in the global economy started at the end of last year. At a glance it seems like a normal downturn in a matured business cycle but several risks are not looking good for the world economy. It has the potential to transform the downturn to a renewed and potentially more damaging financial crash than that of the Great Recession. A major risk for the global economy is the high level of private and public sector debt in major economies. This seriously limits the ability of governments to provide fiscal stimulus if needed. This also raises the likelihood of private and public sector defaults. In addition, another source of risk is the political instability (Malinen 1). Europe is facing a number of overlapping crises and the migration crisis is testing the uniformity of the European project and risk of another full-blown crisis in the Eurozone is building up. Although many countries have put policies into place after the financial crash of 2007-2008 and European debt crisis that followed, there are still risks and their effectiveness during an acute and major crisis is untested. At this time, the European banking sector is vulnerable with a high portion of non performing loans threatening its