Global economic crisis

The global economy today is at  crossroads. Most economies of the world are in crisis due to the worst financial crisis since the Great Depression in the 1930s. The United States is said to be the epicenter of the crisis. Although the causes of the current world economic crisis are numerous and varied, and in a way rooted in the inherent weakness of capitalism, the financial crisis which emerged during 1988 or so is supposed to be immediate cause. Actually what began as a bursting of the U.S. housing market bubble and a rise in foreclosures had ballooned into a global financial crisis. Since then nervous investors have fled from stocks, corporate bonds and municipal bonds, run to the safety of the U S Treasury bonds, and transferred vast capital resources into stronger currencies such as the Japanese yen, the U.S. dollar and the Swiss franc. By September 2008 the crisis became prominently visible with the failure or merger of several large US financial firms such as investment banks Lehman Brothers and Merrill Lynch, and insurance giant American International Group. Some of the largest and most ‘venerable’ banks, investment houses, and insurance companies have either declared bankruptcy or have had to be rescued financially. The crisis evolved rapidly into a global disaster resulting in a number of European bank failures, sharp declines in global stock markets, and large reductions in the market value of equities and commodities worldwide. By the end of 2008, credit flows froze, lender confidence dropped, and one after another the economies of countries around the world dipped into recession. The crisis exposed the fundamental weaknesses in financial systems worldwide, and it continues despite coordinated easing of monetary policy by governments, trillions of dollars in intervention by governments, and several support packages by the International Monetary Fund. In due course the financial crisis metamorphosed into world economic crisis. Most of the economies in the developed world continue to reel under economic crisis. UN has warned that the world is on the brink of another recession, projecting that global economic growth will slow down further in 2012 and even emerging powerhouses like India and China, which led the recovery last time, will get bogged down. The UN 'World Economic Situation and Prospects 2012' report has warned that following two years of weak and uneven recovery from the global financial crisis, the world economy is teetering on the brink of another major downturn. The failures of policymakers, especially in Europe and USA, to address the jobs crisis, prevent sovereign debt distress and escalation of financial sector fragility pose the most acute risk for the global economy in 2012-13.Many believe that unregulated capitalist greed is the root cause of the crisis. As a result they have unwittingly eschewed from required regulations and controls which are crucial for the smooth functioning of an economy.

Many believe that unregulated capitalist greed is the root cause of the world economic crisis. In the past two decades or so a powerful lobby has been espousing and promoting the concept unfettered freedom of enterprise as the sine qua none of economic growth and prosperity. Truly, many governments all over the world have knowingly or unknowingly acknowledged the perceived benefits of unfettered freedom of enterprise. As a result they have unwittingly eschewed from required regulations and controls which are crucial for the smooth functioning of an economy. Moreover events and shifts in the early 1990s—the collapse of centralised planning, the disintegration of the Soviet Union, the market orientation in the economies Eastern Europe, the important role assigned to market in China, the wave of liberalisation and privatisation taking place in many Third World Countries, and the establishment of World Trade Organisation—have been viewed by many as visible signs of the emergence of global capitalist order. Nevertheless the events and crises in the past few years, particularly in the latter part of 1990s—the frequent currency crises, the growing volatility of the stock market, the widening gap between the rich and the poor, the increasing concentration of wealth, the menacing expansion of multinational corporations, the rising incidence of unemployment, the spiraling of prices, the spurt in crimes, violence and terrorism, the upsurge in frauds, the spread of corruption and growing inequality —have been regarded by many as the indications of the imminent downfall of capitalism and as signs of the emergence of socialism. Still others believe that neither capitalism nor socialism will triumph in the present century. For achieving sustained development with attendant benefit to the masses, activities of the governments and private markets will have to effectively complement each other. In short, government policies will have to play a useful economic role in order to sustain development and prevent further concentration of wealth.