Critically discuss the view that capital markets created the Essay - 2

Critically discuss the view that capital markets created the conditions that led to the new economy bubble and the banking crisis - Essay Example It is because of this reason that capital markets are considered to play a very significant role in the economic performance of any country, and therefore, they have a high influence on major economic indicators or drivers. Based on the significance of capital markets in the national economy of any country, this study seeks to discuss the view that capital markets created the conditions that led to the â€Å"new economy† bubble and the banking crisis. This study will support this view because of the simple fact that it has already been established that the capital markets plays a key role in the national economy and, therefore, it is equally able to create conditions that lead to bubbles and bursts within the economy. In order to validate this view, the essay will first discuss the concept of ‘new economy’ bubble and banking crisis and their correlation with the capital markets. The second part of the study will provide case examples, which will act as evidence to the fact that the capital markets created the conditions that lead to the new economy bubble and the banking crisis. The third part of the study will discuss the implications that globalization have on the capital markets. According to the writings by Kelly (1998), he referred to the term ‘new economy’ as the result of a shift that occurs when the economy moves from being based on the manufacturing sector to being based on the service sector. Alcaly (2003) noted in her research studies that this particular term was coined during the dot com bubble that occurred during the late 1990s and even the early part of 2000s. During this period, Alcaly (2003) argued that there were high levels of growth, which meant that there was an increase in the employment opportunities, and the inflation rate even declined, which resulted to optimistic predictions that were a bit exaggerated and based on irrational thinking. This is because the new economy era proved to have