The negative effects of speculations on financial crisis essay paper

Taking into considerations the major causes of the financial crisis and economic recession, the negative effects of speculations on financial crisis become obvious. To put it more precisely, it is financial speculations that led to the galloping prices on strategically important products, such as oil, for instance. In this respect, it is worth mentioning the fact that the rapid changes of oil prices produced a profound impact on national economies of countries importing oil because the growth of oil prices influenced the inflation rate in these countries, costs of production and transportation that naturally led to the growth of prices of other products. In addition, the rapid growth of oil prices put companies depending on oil in an extremely disadvantageous position, while companies selling oil and oil-related products benefited consistently from the growth of oil prices. Nevertheless, eventually, the speculative growth of oil prices undermined the normal development of national economies, including the US economy.

On the other hand, as the economic recession and financial crisis progressed the oil price has dropped dramatically from USD 147 to about USD 40. It proves beyond a doubt that such a consistent change of oil price cannot be explained by any other logical reason but speculation. At this point, it is worth mentioning the fact that the change of demand and supply do not reflect or explain such a change of oil price.

At the same time, speculations could be observed not only on the oil market. In fact, the housing market was susceptible to similar trends, but, in case of housing market speculations were rather one of the factors but not the only factor that has determined the downfall of housing market in the USA. Nevertheless, it is obvious that speculative trends proved to be very significant and produced a significant impact on the development of financial crisis. In fact, speculations aggravated negative trends which emerged in the result of the mortgage crisis in the USA.