CURRENT FINANCIAL CRISIS
Hearts filled with fear and anguish, heads sunk in ledger books, eyes on the share market, feet in deep waters and all fingers pointing towards the United States of America. That summarizes the impact of the global economic meltdown on most citizens of the world. It is doubtless that the callous financial management by the American government has got the world into a “financial” fix, which is indeed getting increasingly difficult to “fix”, as in the true sense of the word.
Clinton’s “American Dream” has come crashing on the world. Due to pressure under Clinton’s administration (that every American may be able to fulfill his dream for a house), the mortgage lenders began to lend easy loans all across the country without credit check or even identity verification to people who couldn’t qualify for conventional loans. Over time, this pilot program evolved into a nation wide policy with money flowing to people who could not afford to pay it back. The first traces of the black clouds over America were seen last year, when the banks began to incur bad debts. These debts had been mixed with international debts infiltrating the world economy with the virus of risky finance. Seeing the real estate bubble blowing up beyond saturation, people realized that their money was unsafe in the banks and began to withdraw their deposits. Lower savings meant lower investment meaning lower production, and lower national income. Lack of trust in the financial stability of most firms led millions of people to sell off their stocks, and digits at the Wall Street came crashing down, resulting in a sharp rise in interest rates, and further lowering investment by firms. As we all know, the bubble of real estate debt, filled with nothing but hot air, has burst, throwing the world into a financial tsunami.
It is rightly said that it is wrong to dwell in the past. In the current scenario it will be futile to pile blame on one person or the other, it is the time to act, before we need to start piling canned foods in our storerooms for fear of continued escalation of food prices as result of double digit inflation rate and constant depreciation of the currency. Presently, there is dire need to place restrictions on capital account convertibility, that is, limited and supervised movement of capital between countries. In my opinion, lending aid to bank after bank, will only cause the figures in the national debt account to multiply, as has been in the AIG case, where $70 billion pumped in by the US govt. vanished within a month without a trace. Even world’s leading investment firms like the Goldman Sachs is now no more than a bank-holding, or in lay man’s language, simply a commercial bank.
With millions rendered jobless all over the world in a month’s time, only time will tell the magnitude of this economic crisis and its impact on the rest of the world.
Tripti Bhatia
[Image Source] http://www.flickr.com/photos/myeye/2932201169/
