Globalization: is the free transport of goods, services and people across the world in a flawless and incorporated manner. Globalization may be the result of the starting of the global economy and the associated enhance in trade between nations. You may also called that when countries that were previously closed to trade and foreign investment open up their economies and go global, the consequence is an improvement of interconnectedness and incorporation of the economies of the world.
Furthermore, globalization can also mean that countries open their import protocols and welcome foreign investment into sectors that are the basics of its economy. Its means is that countries become magnets for attracting global capital by opening up their economies to multinational corporations.
Globalization also meant that different countries of the world pledge to the rules and events of the WTO or the World Trade Organization that oversees the terms and conditions of trade between countries. Some other world bodies like the UN and numerous negotiation bodies where countries agree in principle to scrutinize the policies of free trade and non inequitable trade policies when they open up their economies.
Global economic crisis: was caused by the coming together of numerous structural as well as business cycle aspects that combined to produce a “perfect storm” of epic fractions. These factors ranged from the collapse of the housing market in the United States, imbalances between the West and the East in terms of trade deficits, reckless and risky speculation and finally, the sovereign debt crisis that was a culmination of years of fiscal profligacy and loose monetary policies. Global economic crisis or the Great Recession as it is also known is that the crisis exposed the chinks in the armor of the global economy and highlighted the pitfalls of too much integration and interconnectedness. Nowhere was this more apparent than in the aftermath of the collapse of Lehmann Brothers when the entire credit system froze and the global financial system came perilously close to collapse.
The global economic crisis mainly initiated in the West but had its consequences on all economies of the world. Of course, the US and the Europe were the prime victims of the crisis and it can be said that countries like India and China were somewhat intact in the wake of the global economic crisis. However, this is not to say that these countries have effectively decoupled from the west since the firmly knit global economy and the dependence of China on exports to the US for goods and India for services means that these countries have a reasonable quantity of work to do before they can be called safe. The United States and Europe were badly hurt by the global economic crisis and it is still not clear when these countries and their economies would be out of the woods, if at all they would. If you want to safe your business from global economic crisis then contact to financial advisor Birmingham Al.
To conclude, the global economic crisis has undo many expands that have been made by globalization and hence there are renewed calls for protectionism and for erecting trade barriers in the West as well as in the East. This means that the global economic crisis has dealt a body blow to the global economy which might take years to regain its earlier prosperity.
Causes of Global economic crisis:
For starters, the global economic crisis carries a distinct “Made in the USA” tag which means that the origins of the crisis are to found in the reckless lending and risky banking practices of Wall Street. The primary aspect is the building up of toxic imitative on top of the subprime housing market which means that once the housing market went out of order, the financial securitization and the imitative that were based on the housing market blew up leading to banks being incapable to lend to each other and suffering losses. What intensify the situation was that the globalization of the world economy meant that the global economic crisis was not limited to the United States alone and hence the world economy took a beating as a consequence of the global economic crisis.
The next aspect is the fact that Americans and much of the rest of the world were deeply in debt (personal, corporate and governmental) which was unsustainable. If one lives beyond one’s means, sooner or later the debts come due and the financial calculation day would mean that one is either forced to pay up or go bankrupt. When this happens at the individual level, it usually results in foreclosure of homes, being declared bankrupt and hence unable to pay the credit card bills etc. When this happens across the economy and involves corporate, banks, governments (local, regional and national), and the net result is a credit crunch which in other words was the name given to the global economic crisis.
The third aspect to the global economic crisis is that growth cannot proceed ad infinitum in a world of finite resources. Thus, as skyrocketing petrol prices and food prices were on display in the summer of 2008, individuals and families were left at the mercy of market forces forcing a full blown crisis of market led growth. The point here is that we live in a world of limited resources and hence the paradigm of growing forever needs a rethink as there are limits to which we can use the resources. This is another aspect of the global economic crisis which has been noted by some commentators.
To summarize, there was a junction of different forces (economic, social and political) which resulted in a “perfect storm” of economic and social catastrophe. Hopefully, the global economic crisis should serve as a warning to policymakers to promote sustainable business practices and for individuals and families to not live beyond their means. The bottom line for any debt based economic system is that one can only postpone the day of reckoning but cannot go on forever in the expectation that the debts would not come due.
In conclusion, this article provided a detailed description of the factors that caused the global economic crisis and the subsequent articles would look at the various casual factors along with some recommendations on how to resolve the crisis.