TOPIC: DESCRIBE THE PROGRESS OF GLOBAL FINANCIAL CRISIS WHICH WAS ARISING IN US IN 2008 AND ANALYZE ROOT CAUSES OF THIS CRISIS Introduction The 2008 financial crisis which is sweeping across the world economy has left serious damage for many countries, from the United State to the Europe, other industrial countries, emerging markets, and developing Asia. Especially, in its epicenter – the USA – financial system was nearly crumbled because of the weakness and shortcoming of monetary and financial policies. In 29 September 2008, the stock market saw the largest single-day loss in the history of the DJIA (Dow Jones Industrial Average) with a loss of 778 points. In a short time, the global economy is threatened by a deep recession with the collapse of major investment banks, mortgage loan institutions and the panic that covered the whole of global equity markets. Commercial paper which is usually considered as a safe investment by money market funds, suddenly became risky. A collapse of confidence became unpreventable and global credit condition froze. Credit became impossibly expensive, interest approached zero, loan windows suddenly were slammed shut In this paper, we will discuss about the causes and impacts of this crisis to the global economy; from that point, proposing methods to solve problems in the present and for future. Causes The crisis can be attributed to a number of factors: the inability of homeowners to make their mortgage payments, adjustable-rate mortgages resetting, speculation and overbuilding during the boom period, risky mortgage products, high personal and corporate debt levels, financial products that distributed and perhaps concealed the risk of mortgage default, bad monetary and housing policies, international trade imbalances, But it has its roots in real estate and the subprime lending crisis. The following are some main factors that caused that terrible crisis. 1. Easy money policy In 2000s, despite soaring commodity prices and a falling dollar, which would normally raise inflation fears, the Fed has eased monetary policy, reducing its target for the federal funds rate from 5.25% (from 2006) to 2.25%. In the process of reaching the lower interest rate target, the Fed buys securities from depository institutions, giving them new cash to lend and of course, lower rates stimulate demand for credit. Additional, because of the trade deficit, the U.S. must borrowed money from abroad, which bid up bond prices and lowered interest rates. Between 1996 to 2004, the USA trade deficit increased by $650 billion. To solve this problem, the government must borrowed large sums of capital from abroad. When these funds reached the USA, the market have too much capital and with the easy credit condition, USA household used it to finance consumption or to bid up the price of housing and other assets; meanwhile, financial institutions invested foreign capital in mortgage-backed securities.