Tag Archives: Global Economy

The global economic crisis – the product of today’s buy now pay later culture

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The last four years have witnessed a global economic crisis not seen since the great depression of the 1930’s. With the global economy as intertwined as ever, a brewing credit crisis in America swiftly sent shockwaves and a domino effect throughout the continents.

With export, import, currency valuation, national deficit and controlling inflation such interdependent components of any economy, significant changes or a crisis in one zone can quickly sprout crisis in other regions.

While the global economy limped to recovery from its lows of the 2009’s, a number of factors have recently pointed to a slowdown of the recovery and a possibility that has sent shivers down all investors  – a double dip recession or worse the onset of a depression.

Such fears and general anxiety is one of the main reasons for the extreme volatility experienced in the world stock markets in recent months, with commodity prices yo-yoing as sentiments has changed daily. While everyone has looked to governments for surety, to act swiftly and to maintain stability, in truth the hands of many government particularly that of Washington is tied.

The mechanisms employed that contributed to containment and gradual easing of the first economic crisis is clearly not a long term answer. For example, while many have hoped for another round of quantitative easing in the US, throwing more “money” into solving a money crisis is clearly not a sustainable solution. The US debt is increasing by trillions each year and it’s the children of the future that will be left to suffer from the economic short-sightedness of today.

The common denominator in the crisis of 2008 and the brewing crisis of the current time is credit. While it may be easy to borrow more money to pay off your debts or to ensure the economic cycle continues, at the same time this creates a dangerous long-term conundrum that can easily lead to the collapse of a country.

The theme underpinning discussions and initiatives to calm and contain the current economic crisis is the cutting of the national deficits. National debt is a natural reality and can be key to revitalising a country, however, when the deficit enlarges exponentially and at the same time the government income declines, as per instance the population become weary to spend or job growth declines leading to higher unemployment, the government is unable to contain its debts and becomes susceptible to an economic collapse and a defaulting of its debts.

While in the previous years it was large banks that were bailed out across Europe and America, the perils have increased as governments received bailouts.

In the past year Ireland, Portugal and more infamously Greece have received bailouts. In the case of Greece, the need for larger bailouts has become a growing necessity and a stark reality. The economy is struggling, unemployment is increasing and crucially the deficit austerity measures employed as a condition for receipt of bailout funds have not kept pace with the ever increasing funds needed to plug immediate debt gaps.

With the Eurozone and the Euro become a sacred icon of the European landscape, the idea of allowing Greece to exit the Eurozone or leaving it to default on its debts has become a red-line.

As a “smaller” economy, bailing out Greece is not such a big problem. However, many now fear the worst, that other countries will soon follow foot. The credit rating of many European powers and chillingly the first cut of credit for the US have only exasperated uncertainty.

Two countries staying above water for now are Italy and Spain, both with large deficits and ambitious austerity budgets. With the volatility experienced in bond markets, both countries could easily be sucked into a vicious cycle where only significant bailouts would prevent economic ruin.

With all the talk of bailouts and financial aid, the question of just who will pay for all this is constantly overlooked. With major economies in a fragile shape, government debts already at record levels, understandably no country has jumped at the prospect of contributing bullions more in bailout funds.

As the months have passed and Eurozone crisis in particular has gathered pace, it has become ever apparent that only an all-encompassing Eurozone bailout facility could contain the crisis. This has led to controversy in a number of more established economies particular that of Germany and also in countries such as France who are particularly exposed to the Greek crisis as main creditors.

Short-term solutions should not mask the wholesale changes needed across the global economy, including tighter regulatory control of the banking system, a deficit levels that matches the profile and economic growth of a country and also a need to avoid ignoring the fiscal failing of another country as “their problem”. Your neighbour’s problem could very soon be your problem.

The need to work together will become critical with the world population fast reaching 7 billion. The demand of oil, staple foods and general resources has already pushed up global prices with global poverty threatening to increase even further than the rates of today.

 A greedy mentality amongst bankers, uncontrolled capitalism and governments who refuse to look at long-term debt measures, only adds fuel to a growing fire.

Kurdistan as a flourishing economy is developing an economic foundation for a number of reasons. If the government controls debts and deficit levels at an early stage, this could safeguard Kurdistan economically for decades to come. Kurdistan has practically no debts and is self-sufficient – its spending could easily be facilitated by it growing clout as an oil power.

Much like the global crisis of the past few years, which has had minimal impact on Kurdistan with the exception of declining oil prices, the Kurdistan government must take heed before crisis strikes.

Although the Kurdish economy is in a stable shape, key deficiencies should also serve as long-term alarm bells. The lack of an effective tax system, social welfare and privatisation could undermine prosperity in the years to come.

Kurdistan should establish a solid private banking system, a facilitation of controlled loans to the general population, allow income taxes to create revenues and ensure the private sector is given firm backing.

The economy should be diversified to allow other sectors such as tourism and production to increase and to ensure that the import and export ratios are closely watched. Self-sufficiency is key and by allowing disproportionate import levels, a declining agriculture and over reliance on a single source of income, Kurdistan could become engulfed in regional and global economic crisis and more crucially become susceptible to policies of its neighbouring powers.

First Published On: Kurdish Globe

Other Republication Sources: Various Misc.

G8 Leaders Meet in Japan

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G8 Summit gives world leaders much food for thought

The current global economic crisis, with runaway inflation, dominates 3-day annual summit of world-leaders.

The leaders of the world’s self-appointed steering committee, the G8 group of countries, commenced their annual summit this week in Japan. Previous summits including the last one held at Heiligendamm in Germany have proved contentious and have often been marred by anti-globalisation protests and civil violence.

This meeting was sparred the violence, perhaps only by its remote location on the island of Hokkaido.  The leaders of Britain, United States, Canada, France, Japan, Germany, Italy and Russia, could perhaps feel the global pressure and public fear in the ambience of their surroundings. 

Indeed, a year can prove a rather long-time, with the world changing much since the last summit.

At the head of current international concerns is the global economic downturn and rising inflation, threatening the onset of a damaging recession in US, Europe and beyond. In the advent of globalisation, the world has become exponentially smaller. With world markets intrinsically tied to one another, one economic downfall can have large ramifications throughout the world.

The US, with the world’s largest economy, is a prime example of this. The Federal Reserve has been desperately trying to ward off economic recession in the country. With a lack of money in circulation, particularly between banks lending to each other, this has led to a credit crunch that was immediately felt in the UK but also sent shivers across other dominant markets.

At the fulcrum of the current headache is without a doubt the runaway oil price. With oil prices reaching a record $140 a barrel, remarkably this means that prices have doubled since Heiligendamm a year ago. With a major reliance on fuels in the US and Europe, not to mention the fuel-thirst of fast developing economies such as India and China, the huge rise in oil prices has had a significant bearing on spending and economic confidence of the general public throughout the continents.

With prices threatening to reach $200 a barrel any time soon, there has been a major pressure on world leaders to work on ways to control prices and promote alternatives to carbon-fuels. Almost inevitably, OPEC have been pressured to increase supply of oil reserves, with Saudi Arabia, Iraq and other major oil producers benefiting greatly from the oil-surplus in their accounts.

More worrying than fuel perhaps, the price of rice and other grains has seen massive raises, threatening stability in Africa and Asia, and serving a massive blow to the much-publicised G8 commitment at tackling world poverty. Ban Ki-moon, the UN secretary general, claimed that high food prices are “turning back the clock on development gains”, under-pining fears of major powers.

Rising food prices has led to an increase in malnutrition in poorer countries and even in public protests by beleaguered citizens. There have been calls for doubling of food production in Africa, creating world stock-piles of food and increasing shipment of supplies to worst-affected areas.

However, often economic measures are beset by trade-offs. Lower oil prices, will undoubtedly run counter to reducing carbon dependency and tackling the greater issue of climate change.

In turn an energy crisis, may counter the drive against nuclear proliferation.  The much touted need for bio-fuels, conversely results in less land for food production, which will only increase food prices.

The so-called richer countries are determined to prevent economic recession, seemingly over their aim of tackling rising inflation. This trade off is a corner-stone of the functioning of regional economies and the global economy, and the balancing act is at best delicate.

Nonetheless, when that “balancing act” from the G8 countries and other global powers has such wide-reaching implications, such as inducing potential hunger in Africa and Asia, then the tables are turned. However, commitments and mere talk by major powers to help more vulnerable nations is not new and not enough. Some have warned that even development goals for the poorer countries set three-years ago by the G8 are at risk.

The current food and fuel crisis is augmented by the all-frequent motion of reducing carbon emissions. The final day of the 3-day summit, was dominated by carbon emissions and global warming. In addition to the 8 majors, the worlds other biggest emitters were invited to the table for discussions. The Kyoto Protocol, which expires in 2012, has been marred by controversy, with the world’s largest emitter, the US, reluctant to commit to CO2 emission targets. Amidst pessimism and criticism at the lack of genuine action, the G8 have reaffirmed their common vision of reducing carbon emission by 50% by 2050.

Here comes further trade-offs and economic-mongering that makes agreements and global targets so difficult to set, China and India, the most worrisome of emerging countries in terms of carbon emissions, will unlikely go beyond even verbal commitments without a return of money or incentives from the West.

The stance of India and China is clear, they will not sign-up to an inequitable method of dealing with current atmospheric problems, which was largely caused by earlier industrialisation. Why should their own much-delayed developments suffer, just because the Western belly is now full of industrialisation and advancement?

The cyclic dilemma intensifies as the US is unlikely to commit to emissions targets, if rapidly emerging economies are left to develop at will.

Clearly, the next year is a delicate period for the G8 and other major countries. Not dealing with such economic shortfalls can conceivably lead to a much more serious global crisis across the world. Therefore, it is understandable why runaway fuel and food prices have dominated the global agenda.

Economic concerns masked other global political unease such as dealing with the controversial governments in North Korea, Iran and Zimbabwe.

This entire global economic conundrum, begs the question whether this current crisis could have been anticipated, avoided or at least in part mitigated?

Although the doubling of prices and food shortages has caught the majority of analysts and world leaders by surprise, key factors indicate that this was brewing and may yet dominate the world scene for decades to come.

The global population is largely expected to reach a remarkable 9 billion by mid-half of this century. The current booming population has created a tremendous pressure on the limited resources of the world. With a growing population come more mouths to feed, the need for more land and the need for more fuel.

This need by a booming population is exasperated with new significant and rapidly expanding economies in India and China. This pushes what were already stretched global reserves to breaking point and only worsens global warming onset by the global powers before their time.

As the world has grown, the fight for reserves has become more crucial. In turn, it has made the delicate balance of maintaining a world order ever more difficult and with increasingly graver consequences.

If the current world population, excepted to grow by almost 50%, is unable to sustain stability today, then the generation of tomorrow, which will suffer from even-more depleted natural resources, less land for agriculture and greater demand for food, may reach critical a breaking-point unless significant motions are set in the years to come.

First Published On: Kurdish Globe

Other Publication Sources: Peyamner, Various Misc.