The global economy is teetering on the brink of recession. The downturn after four years
of relatively fast growth is due to a number of factors:
The global fall-out from the financial crisis in the United States
The bursting of the housing bubbles in the US and the other large economics, soaring commodity prices and stock market volatility.
The global financial crisis really started to show its effects since mid 2007. Government implemented rescue packages to improve the economic stance of the country.
The meltdown will affect the livelihoods of almost everyone in an increasingly
interconnected world. All this could have been avoided, if ideologues supporting the
current economics models weren't so vocally influential and inconsiderate of others' point of view.
The crisis is so severe that the world financial system is affected, thanks to financial instruments such as securitisation (where banks have to pool various loans into sellable assets), these risky loans resulted in even more money being loaned out, instead of creating more security, the loaners needed more and more money to survive. Running out of people to loan money to, the banks turned to the poor. Rising house prices led the loaners to believe that it wasn't too risky and bad loans meant repossessing high-valued property.
When people did eventually start to see problems, confidence fell quickly and the loans only solved some problems. The was a lack of confidence in some banks, as they had
little money in deposits and no secure retail funding so some collapsed quickly and critically.
The extent of the problems have been so severe that some of the largest financial
institutions have collapsed, while others have been bought out by their competition at low
prices and in other cases the government have resorted to extensive bail out and rescue
packages. The total amount that government have spent on bail outs have skyrocketed.
For the people living in poverty, even in wealthy countries, life can be desperate and
miserable. Concerns will range from crime in the neighborhood, to good schooling, to
getting by every week with the bare minimum and ensuring a steady job. The hope of being
able to escape it for a while was exploited. When in poverty, long term thinking is not always going to enter the realm of immediate concern, and loans seemed like the solution to immediate problems.
Many blame the greed of Wall Street for causing the problems in the first place because
it is in the US that the most influential banks, institutions and ideologues that pushed
for policies, which caused the problems, are found. The crisis became so severe that after
the failure and buy-outs of major institutions, the Bush administration offered a $700
billion bail-out for the US financial system.
It is a disappointment but not a surprise that the administration came up with a bill that is again based on trickle-down economics. For the developing world, the rise in food prices as well as the knock-on effects from financial instability and uncertainty in industrialised nations are having a compounding effect. High fuel costs, soaring commodity prices together with the fears of global recession, are worrying many developing countries' analysts. Commodity-development economics are exposed to considerable external stocks stemming from price bonus' and busts in international commodity markets.
Countries in Asia are increasingly worried about what is happening in the West. Many
believed Asia was sufficiently developed from the Western financial systems. Asia has
not had a sub prime mortgage crisis like many nations in the West have, for example many
Asian nations have witnessed a rapid growth of wealth creation in recent years. There has been more interest in Africa from Asian countries such as China. As the financial crisis is lightening, the Western nations' hardest, Africa may enjoy increased trade for a while.
South Africa, with the largest African economy, has entered into recession for the first time since 1992, due to a sharp decline in the key of manufacturing and minimum sectors. In the long-run, it can be expected that foreign investment in Africa will reduce as the credit squeeze takes hold. The two are in fact inter-related issues, both have their cause rooted in the fundamental problems associated with a neo-liberal, one-size-fits-all economic agenda
imposed on virtually the entire world.
The poorer countries do get foreign aid from richer nations, but it cannot be expected
that current levels of aid can be maintained as donor nations themselves are affected by the financial crisis.The Millennium Development goals to address many concerns
such as having poverty and hunger around the world, will be affected. Tax hikes during
good times can be so politically sensitive and the government may be afraid to make such
choices. Economic policies are even more riskier than the result. The issues of tax havens is
important for many poor countries. These havens result in capital moving out of poor countries into havens.
Most economic regions are now in the midst of the recession. At such times, government
attempts to stimulate the economy by increasing loans, reducing interest rates and
taxes, and spending on public works such as infrastructure . Borrowing at the times of
recession seems risky, but the idea is that this should be complimented with paying back
during times of growth. The public infrastructure needs to be reworked, as it can potentially employ many people. However, most states realise that markets are not always able to function on their own. Many of the countries are turning to the International Monetary Fund (IMF) for help, developing countries would be forced into destabilising policies and driving away capital when they need it most. Banking systems virtually collapsed and the government will have to borrow from the IMF and other neighbouring countries to try salvage what is left of the economy.
It may be that this time round a more fundamental set of measures need to be
considered, possibly global in scope, the very core of the global financial system is
something many are now turning their attention too.
People are retched because of recession.
