2007 – 2013

Crisis years : what we have learned so far ?

Crisis All Around

Unfathomable crisis hit the global economy in August 2007, September 2008, April 2009, May 2010 and August 2011.

The first phase- August 2007- started after BNP Paribas hastened ownership of the banking system by making it known that it was halting hedge funds that were detrimental in the US mortgage debt. It was then very evident that the tens of trillions of dollars bankers thought was in existence was not. Banks which initially did business together stopped due to the mistrust and the losses and exposure of the individual banks.

It was until September 2008 that the financial mayhem took a turn for the worst as the US government let Lehman Brothers- an investment bank, to go bankrupt. Usually, governments would bail out banks that were involved in big crises : the US government for example sort a buyer for Bear Stearns.

Lehman Brothers Bankrupt!

The opinion that many people had about big bank being incapable of failing went down the drain after Lehman Brothers became bankrupt. This created a chain of events which involved western governments depositing huge amounts of money into their banks to deter them from collapsing. Even though the banks were recovered just in time, the global economy hit a major crisis. The private sector especially, was affected as credit stopped flowing due to the mistrust between the consumer and the business fraternity.

Efforts to Salvage theCrisis

The G20 group, in September 2009, co-ordinated activities which were aimed at deterring the global economic crisis from becoming a slump. It began by reducing interest rates, creating electronic money and making different financial products available to the public.

In May 2010, focus transitioned from the private sector to the public sector. IMF and the European Union made it known that they would give a financial hand to Greece. This showed that it was no longer about the banks financial status but the governments’. Greece suffered major financial losses as it faced problems when it came to collecting taxes. It also had large budget deficits.

 

S&P declared that America’s debt would stop being classified as top-notch triple A. Needless to say, the timing of the announcement was horrible because just a week before, the biggest sell-off in the history of stock markets took place.

Zero Optimism

In such events, being optimistic is close to impossible. Markets are very likely to remain uncertain of its activities. Japan for example, has a huge national debt of 200% of GDP and lost its triple A rating a long time ago.

This is proof that the country’s growth prospects are not as good.

Bond payments in America still remain low reflecting the world’s biggest economy crisis. The S&P announcement however, told a different story; Beijing was overshadowing Washington. China’s growth rates were closely getting to the US.

Barack Obama was not happy with this news as it curtailed his objective for economic recovery. To bridge the crisis, financial policy will be limited in the coming months and public spending truncated. Presiding over the disgrace of a national debt reduction, Obama was branded as more of Jimmy Carter and less of FDR.

Europeans should not be complacent because the economic crisis has not only hit the US but also the west. After the discovery that the growth rates of China could possibly surpass that of the US, a declaration was made that talks would be held between the UK, the US, Germany, France, Japan, Italy and Canada. The talks however would do nothing much to calm the markets today as it would have 20 years ago. China plays a big role in the G7 meeting and without it, results are vain.

Some stories such as these have no happy ending. With the rise of unemployment caused by the huge debts individuals and banks have accumulated in the years, the economic future does not look so good. The global economy will shift to recession due to the US financial mayhem and the euro will downgrade.

The reason is simple. International cooperation does not exist. Plans for austerity are underway but none for real economic growth. Countries that were capable of borrowing money for financial products are disinclined to do so. Europe does not have the political will to necessitate thex integration required to prevent the dissolution of the sole currency.

The silver lining to the cloud is the reduction of prices of goods. Nevertheless, the economic crisis that started on August 2007 has just gotten into a perilous phase.

 

 

 



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