Lewis Honors College Capstone Collection

Year of Publication

2013

College

Business and Economics

Department/School/Program

Accounting

Degree Name

Bachelor of Science in Accounting

First Capstone/Thesis Advisor

Dr. James Fackler

Abstract

The goal of my research is to analyze the relationship between the 2007-2009 United States financial crisis and the ongoing European Sovereign Debt Crisis and the Debt Crisis’ possible effects on the global economy and to examine the different approaches to reduce the devastating effects of the European Debt Crisis.

First, I am going to analyze the relationship between the bursting of the US Housing Bubble and the European Debt Crisis. According to Robert Kolb (2011), a Finance professor at the University of Chicago, the bursting of the US Housing Bubble in 2007 that resulted in the 2007-2009 economic recession left financial institutions, such as banks, with serious liquidity problems because borrowers kept defaulting on their mortgage loans. Second, I am going to explain the European Debt Crisis’ possible effects on the global economy. For instance, if many European countries are unable to pay off their debts from the US, US banks would be damaged. In addition, European loans could hurt US taxpayers. For instance, Lachman (2011) writes that "the International Monetary Fund (IMF)’s lending commitments made to Greece, Ireland, and Portugal total around $100 billion, and considering that the U.S. has a 17¾% share in the IMF, these lending commitments put the U.S. taxpayer at risk for almost $20 billion should those countries be unable to repay the IMF.” Third, I am going to examine the different approaches to reduce the devastating effects of the different financial crises, such as implementing the appropriate combination of fiscal and monetary policies.

I will write this paper primarily by reading economic books and the Wall Street Journal.

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