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For a long time, the role of the impact of financial factors on real economy has always been a hot issue of concern for economists. In the financial sector, the financial system and financial policy have increasingly become an integral part of the economic system. The economic cycle theory’s financial neutral set in the early stage is seriously challenged (Jović, 2006). In the 1980s, the perfect fusion of financial markets and endogenous growth model enrich the theory of economic cycles. The financial factors having an important position in macroeconomic volatility source and strong conduction can be affirmed by the use of endogenous growth model. In recent years, along with the gradual relaxation of financial regulation and the continuous emergence of financial innovation, financial globalization and diversification of financial instruments have greatly enhanced the mobility of capital, thereby increasing and amplifying the financial risk. In this essay, it will firstly discuss the development status of the world financial system. Secondly, it will explore the reasons of affecting the financial system’s prosperity and recession through the analysis of the example of the 2008 financial crisis. Finally, it will summarize measures of a country’s response in the various stages of the financial cycle under these reasons.

The development status of the world financial system

There are a lot of new features to the world financial system, so it needs to study and grasp the regulations. First of all, in the whole world sphere, the financial system presents a holistic performance displaying as the internationalization of the currency and the integration of the financial system. At present, the global financial system has been formed as a single entity, a new pattern of complementary linkage and a place where the problem will immediately cause a chain reaction. Second, the global financial system is fragile. In case that a link has been signs of trouble, it will immediately form a butterfly effect. Therefore, the entire financial system will have a chain effect. Unfortunately, this trend is unable to control. Although the subprime crisis itself is only involved with hundreds of billions of dollars, it affected the whole world (Zikmund, 1997). Moreover, there is an excess liquidity in the global financial capital. The vast majority of the world's wealth is owned by a few people, thus it greatly increases the flow risk of financial capital. These financial predators make the speculation to a certain extent, and then obtain the shareholders’ money with the result of a financial disaster in future markets, stock markets, housing markets and foreign exchange markets,. There is no exception from the financial turmoil in Thailand to the financial risk of the South Americas.This has become an established formula and the basic law. Finally, it becomes more frequent to the cyclical nature of the financial fluctuations. After World War II, the global economic crisis has been converted from overproduction crisis in the past into a financial crisis. This is the new law of the world economic crisis of capitalism.