The Worst of the Global Financial Crisis Is Still To Come

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Table of Contents

Introduction
Why the Economic Crisis Is Bound To Persist
Conclusion
References

Introduction

Although the world economy has shown signs of improvement since the 2008 to 2009 economic crunch, its restoration rate is questionable in terms of filling the gaps left by the crisis. That is, although the growth rate is encouraging in some economies, there exist great disparities in the level at which different countries are moving towards economic stability.

Considering this although most nations have shown signs positive economic growth, as evidenced by their improving domestic production levels, their policies of dealing with the effects that the economic crisis left behind are questionable. The approach taken by most nations seems to ignore that, prior to the 2008 to 2009 economic downfall; economic crises have occurred periodically since the 1929 great depression.

Many policymakers blame the crisis on poor economic regulatory systems, while forgetting contributions of the numerous flaws that exist in the global economic system. Most world economies have adopted economic policies that overlook the significance of discouraging regulatory arbitrage, as a primary means of ensuring that the set policies promote the stability of their economies.

For a government to ensure its economy remains stable at all times, it is important for such a government to set clear and achievable economic policies that can help it achieve its capital requirements, through regulating institutions that constitute its economy (Tavex & Petrov, 2008, p. 1).

Therefore, considering the numerous flaws that exist in the global economic system and the fact that, most governments have deviated from addressing the real causes of the global financial crisis; hence, formulate strategies of avoiding chances of the crisis reoccurring in the near future, likelihoods of another financial crisis occurring are high.

Why the Economic Crisis Is Bound To Persist

Yes, to some level the argument by most economists that, lack of faith in financial markets, greed, and egocentric herd instincts are primary causes of the depression is correct. However, before blaming all these factors, it is important for individuals to fist address the numerous political and legal flaws that are clear in most economic systems.

In addition to this, although most economists acknowledge that, their exist many information gaps, mostly in the operations of most financial institutions, most of them fail to acknowledge the contributions that such gaps made, in making the crisis worse. On the other hand, many economists tend to ignore the historical monetary experience that the world has undergone.

Ignorance of these like factors when formulating solutions to economic problems is one of the primary reasons why most economic stimulating programmes fail, leading to accumulated economic problems that result in a crisis.

As a result of the crisis, although most governments have adopted means of strengthening their financial institutions, still their approach of creating important structures to detect and deal with any sign of insolvency is questionable.

Dealing with any acts of insolvency requires creation of stable financial structures, which can provide the required fiscal support whenever need arises, as a mechanism of preventing chances of financial crisis occurring.

Therefore, although organisations have endeavoured to put up such structures, their rate of developing stable financial market structures and organisations may hinder them from achieving the desired results before another financial crisis knocks at their door (Naude, 2009, pp. 3-8).

After the global economic situation stated showing signs of improvement in 2009, the world anticipated that that the situation was to bounce back to normalcy in a steady pace.

To deal with the crisis, most global governments went into borrowing huge sums of money to salvage their dying economies, forgetting that money borrowed will only offer a short term solution hence, has nothing to do with improving the Growth Domestic Product of their countries.

Although most governments have endeavoured to support their economies through offering financial support to their citizens, the social economic condition of most people still remains the same or has worsened, because of the numerous weaknesses in the economic recovery strategies adopted. Since the economic crunch occurred, the level of unemployment in most countries has worsened.

This has made production inconsistent in most countries hence, because most individuals rely on governmental support to sustain their lives (Lendman, 2009, p.1). This is very detrimental to the growth of a nation’s Growth Domestic index, because of the reduced taxable income, which contribute to the amount of revenues collected by a government to support its economy.

Yes, no one can deny that every government is doing everything at its disposal to safeguard the wellbeing of its citizenry; however, is what such governments are doing offering concrete and long term solutions to avert any chances of another crisis occurring? The answer is clearly no because, still uncertainty looms about the likelihood of prices of essential goods stabilising.

In addition, although most government’s efforts have provided short term solutions to the crisis, the unemployment state of most developed and developing countries is worrying.

To deal appropriately with a financial crisis, a government needs concrete structural reforms that may include a complete change of a nations public finance system, implementing labour reforms, and reforming all sectors that contribute to the wellbeing of not only its economy, but also its citizens (Roubini, 2009, p.1).

Prior to the 2008-2009 economic turmoil, majority of the then existing market oversight bodies underestimated the impacts of the risk-taking activities of most corporate organisations.

In addition, back then although their exited market oversight bodies that were kin in observing the fluctuating market trends, most of them failed to acknowledge the interconnectedness of these risk-taking activities and a financial crisis, and the nature of effects that could result from the fragmented regulatory mechanisms in the operations of most national and international financial markets.

Although since the crisis governments have endeavoured to address these faults, lower leverages and increased funding mismatches are primary characteristics of most financial markets.

Considering this, in case another financial crisis occurs in the near future, likelihoods of most financial institutions surviving are lower, although most financial institutions have endeavoured to consolidate their efforts, as a means of dealing with any counterparty risks that may arise.

On the other hand, because of the market failures that resulted mostly because of lack of transparency and poor regulatory mechanisms of limiting excessive risk-taking, although governments have implemented put in place regulatory measures and structures to control their financial markets, most of such measures seems to underscore the significance of a strong global economic system.

This is the case primarily because, most governmental efforts to salvage the state of their financial markets ignore the fact that, national economies rely on one another hence, any regulatory mechanism adopted should endeavour to promote the wellbeing of all global economies.

Further, to ensure that any adopted regulatory mechanism works, governments should adopt well coordinated intergovernmental efforts, which should ensure that, by all means their is no stifling of any government’s development initiative; hence the need of a closely monitored and coordinated cross-border development initiatives (United Nations Conference Trade and Development, 2009, pp. 16-39).

Moreover, although most strategies adopted by most governments encourage the consolidation of policies that encourage incentives that have greatly encouraged systematic stability, most of such mechanisms have greatly failed to eliminate regulatory arbitrage.

In alleviating chances of another financial crisis occurring, it is critical for all policy makers to critically analyse the current condition of most post-crisis economic systems. The 2008-2008 was almost forced mega-financial institutions to go into liquidation.

Although most policymakers and government have recognised this, none of the governments has endeavoured to restructure such institutions, as most governments still depend on the enormous contributions made by such institutions to their economies.

This makes it very risky, because if in the future such institutions go into liquidation chances of even the giant financial bodies, for example, the International Monetary fund saving them are low, because of the complexity of liquidity problems (International Monetary Fund, 2009, pp. 3-22 and Te Velde, 2008, pp. 2-5).

Considering this, unless governments adopt strategies that will give their financial institutions a chance of offering liquidity, to avoid draining of foreign exchange reserves, likelihoods of a greater financial crisis occurring high; hence the need for governments to take precaution (Wilson, 2009, p.1).

Conclusion

In conclusion, unless governments endevor to formulate viable policies to deal that can address the economic crisis that has recurred periodically since the 1929 great depression, a more worse crisis looms in the air.

This is because, although most governments have come up with some economic stimulus programmes to deal with the gaps that the 2008 to 2009 crisis left, most of such initiatives have ignored the deep underlying causes of the crisis.

Therefore, in formulating any economic boosting strategies, it is important all policy makers consider both historical and future factors that are likely to affect the economic system of a nation before their formulation and implementation.

References

International Monetary Fund, 2009. The implications of the Global financial Crisis for low-income countries. Web.

Krause, U. M., Hoffman, M., Bundesbank, D., & Laubach, T., 2010. Real causes of the global economic crisis. Web.

Lendman, S., 2009. Predicting worse ahead from America’s economic crisis. Web.

Mohan, R., 2009. Global financial crisis-causes, impacts and policy. Web.

Naude, W., 2009. The financial crisis of 2008 and the developing countries. Discussion Paper 2009/01. Web.

Roubini, N., 2009. The worst is yet to come: unemployed Americans Should Hunker down for more job losses. Global Economics News. Web.

Tavex, A. T., 2008. Credit crisis-the worst is yet to come: financial system upside down. FSO Editorials. Web.

Te Velde, D. W., 2008. The global financial crisis and developing countries. Overseas development Institute. Web.

United Nations Conference Trade and Development, 2009. The global economic crisis: Systematic failures and multilateral remedies, United Nations. Web.

Wilson, L., 2009. Financial crisis, worst is yet to come, market forecasts into 2015. Market Oracle. Web.

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The Worst of the Global Financial Crisis Is Still To Come

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