How will the World survive the economic crisis

The global economic system has faced numerous challenges in this age of globalization. The effects of the recent global recession have yet to subside fully, even with economic analysts giving positive indicators for the global financial economy recovery. Failure in the global economic system can be attributed, to the dynamics of failed international and national financial deregulation, deep inconsistencies through global, financial, trading and monetary policies, and persistent global imbalances, which ring true in the current global economic crisis.

Introduction The current global economic is as a result of the credit turmoil which originated from the United States. The troubled subprime mortgage sector in the US was the initiator of the global recession, which is yet testing the global financial systems, as the global economic crisis persists with continued risk of escalation and worldwide increase. The spillover is increasingly being felt across the global economies such as the emerging East Asia, and posing sizeable risk to financial and macroeconomic stability in the global economic system.

The question arising is whether cities across the world will survive through the instability in the financial systems. The genesis of the crisis emanating from the US financial system, has been able to spread to many countries, because of the interlinked national financial systems, with asset prices falling, contraction of liquidity and the persistent uncertainty in the financial markets gradually generating towards a full blown economic crisis, if appropriate mechanisms and strategies are not put in place.

Consequently, adding to this spiral has been the blind faith towards the perceived efficiency in deregulated financial markets, coupled with the absence of a monetary and financial system that is cooperative. This is turn has created an illusion and speculation in different finance sectors of licensed profligacy and risk-free profits. The solution to the systematic failures, lie in comprehensive reforms with vigorous re-regulation, supported by governments working in a united front across the world against the global economic crisis.

The aim of this study is to analyze the current global economic crisis with causes and effects, current situation and suggestions to the way forward out of the crisis, considering such effects as the never unending global famine, environmental crisis and the HIV pandemic. The World Economic System The global economy has is facing various challenges compounded by instabilities in the financial and monetary systems, emanating from the 2008 to 2009 financial crisis that dealt a major blow, starting with the United States capital markets, and consequently flowing to other nations attributed to the interlinked channels of economy through trade.

The recent market instability had various underlying factors that led to the recession and ‘credit crunch’ experienced, in various developing and developing nations (Acemoglu, 2009 p. 45). Chiefly, among the contributors of the market instability was the dramatic change in the US economy; following the ability of creating new lines of credit that inevitably dried up the movement of cash(money supply was curtailed) hence leading to slow economic growth as there was no stimulation of investments.

This instability in the market was a recipe for the global economic crisis, which left many individuals and nations hurt in its wake, financial institutions and businesses hit hard, and also various other institutions left with mortgages backed with assets whose value, dropped precipitously and hence could not bring up enough money that was required to pay off the loans. In this effect, many institutions were left with dwindling reserve cash which consequently restricted their credit allowance, and the ability to take up new loans.

More so, the cheap credit was also another factor for the economic slowdown, where people and businesses invested and brought property based on pure speculations. Credit can be a great tool when used by economies wisely in development, but the situation in the US got out of hand and triggered the economic crisis. The current economic crisis is characterized by escalating consumer paradigm shift, emerging from the tipping of the economic crisis. In addition, various banks across the globe have collapsed following this turn of events, with stock prices slumping and the unprecedented slowdown in the economic activity (Dunn, 2004 p.27).

The effects from the real estate and financial speculation from the US resulting from the long unmitigated international financial instability, trade imbalances, have yet to subside from the spillover in various countries across the globe. Compounded by several regional and local crises, many nations both developed and developing could not prevent the crisis which consequently affected their economies by late 2008. Many governments have responded with diverse emergency measures towards the global economic crisis, enlisting stimulus packages towards growth from slumped economies, but the economic crisis has persisted.

The result is that many workers in large numbers across the world have been laid off as companies and institutions employ measures to stay afloat in the crisis. Consequently, these individuals have been left with no means to cater for their daily needs, increasing aspects of poverty and hunger especially in developing nations. The economic crisis has also impacted many countries at such a time when there has been persisting famine, which has left many governments unable to cater to its impoverished citizens.

Coupled with instability in trade interactions, essential commodities such as food stuffs have become expensive beyond the reach of many living below the poverty line, therefore aggravating the worsening situation. Global talks on the rapidly changing global climate with the consequences of environmental crisis, impacting diverse nations, has yet to take serious measures in resolving global warming issues and the effects looming. The shift in global climate has seem adverse effects such as the recent Haiti tragedy, which left the country devastated coupled with the current global economic crisis.

The environment has been stretched to its limits as economies constantly rely on it, as a resource to feed the ailing economies from the slumped growth, thus resulting to strains and destruction affecting the overall global climate. As people find alternative means to cater for their basic needs some have resulted to prostitution, drug peddling and several other means which have been a catalyst for the AIDs and HIV problem, which various countries especially emerging economies are constantly dealing with (Galbraith, 2003 p. 77).

The pandemic is spreading against the backdrop of the economic crisis, whose effects have spilled down into communities and societies across the globe. With lack of resources and finances to curtail the worsening situation, many governments are finding themselves in a tight spot due to finance implications. Even more, the solutions to these crises both regionally, local and internationally are constantly complicated by the level of the economic crisis which is deep, and also through the lack of global institutions dedicated to solve the worldwide issue, coupled with overlapping crises in global trade, natural resources, and the environment.

However, through this crisis many see the opportunity in democratic re-structuring and renewed regulation of the global economy. World economic indicators in the unemployment rate coupled with rates of inflation; have yet to show a strong and positive result towards recovery from the current economic crisis. The Way Forward in the Economic Crisis With the current global economic crisis, the question that many economists and observers ask is whether, various cities across the global will weather out the financial crisis as it gains momentum, posing a more sizeable risk of another looming recession.

The credit turmoil has caused immense damage culminating into a full blown economic and financial crisis, spilling over into both developed and developing countries. However, there still remains ground for guarded optimism in the ability of global financial markets and systems to weather the economic crisis, and consequently generate to stability in finances and macroeconomics (Gosh, 2006 p. 95).

Many banks pulled back because of the extreme stress in the financial systems, but relative resilience in various financial systems and regional banking has seen improvements in liquidity and risk management, particularly to Asia’s financial systems and others across the globe. Moreover, the aspect of banks pulling back further because of credit intermediation, cannot be ignored which can be a recipe for a more local ‘credit crunch’.

Important measures must be undertaken by national authorities with the ongoing economic crisis, to aid forestall the trend coupled with associated threats which can be detrimental to domestic financial stability. Regional policy makers, under these circumstances have a vital role of ramping up monitoring and control, of local financial markets and consequently establish contingency plans that will help deal with both domestic and foreign currency liquidity problems, risks of generalized credit squeeze, and possible bank balance sheets deteriorations as the economic crisis takes a more troubling and broader dimension (Obstfeld, 2008 p.

16). Policy makers in different countries still have growing and significant challenges, in utilizing various opportunities towards a more proactive rather than reactive stance, towards emerging threats in financial stability. In this respect, significant short term challenges would entail helping regional financial systems combat with the crisis, and continue to operate without hitches even with the slowing economic activity, credit availability, and reducing global risk appetite.

Long and medium term objectives would necessitate sequential strengthening of liquidity and risk management, appropriate recapitalization and necessary restructuring, institutional and market upgrade frameworks. This will foster a systematic support for the sound operation and running of financial markets.

Additionally, major reforms and changes are being called up in the global economic system, with international institutions such as UNCTAD sensitizing for a global economic decision making, in order to clear the current crisis which has been clear attributed by globalization, systematic failures coupled with multilateral remedies. The resolve for the global crisis calls for greater action in finance and trade talks with global regulation and global cooperation.

A reform process will be essential in mitigating the recurrence of economic crisis and implications, which will be far beyond the realm of regulation leading to adverse impacts, of the already worse global issues such as environmental crisis, global famine, natural resources and the AIDs pandemic. Conclusion Despite the current unpredictable and volatile economic climate, there is still a guarded optimism that the world financial systems have the ability to weather out, the challenges presented by today’s economic crisis.

Even with the current downturn, markets across the world in various sectors are still registering relatively robust growth. The economic crisis across the world has yet to bottom out, with major industrial economies faces numerous challenges because of the deep recession, and growth dramatically slowing down in both developing and developed countries. Danger still looms for many financial markets to fall into a deflationary trap which cannot be ignored or dismissed, for the various essential economies across the world.

Consequently, the drivers of the current global economic crisis are far diverse and more complex, where simplistic strategies cannot work out the deeper problem. For the world economy to survive, deeper and more integration mechanisms in financial and monetary markets, have to be given a priority in various economies across the globe, also encompassing the aspects of environmental concerns, global climate and AIDs in the world, and consequently applying sound macroeconomic principles.

References

1. Acemoglu, D. (2009).The Crisis of 2008: Structural Lessons for and from Economics. United States. MIT. Mimeo. 2. Dunn, R. M. (2004). International Economics. London and New York. Routledge 3. Galbraith, J. (2003). The larger International Monetary Problem. International Economics. United States. 4. Gosh, A. & Ramakrishnan, U. (2006). Do Current Account Deficits Matter? Finance and Development. Volume 43, Issue 4, p. 95. 5. Obstfeld, J. (2008). The Global Capital Market: Benefactor or Menace. The Journal of Economic Perspectives. Volume 12, Issue 4, pp. 9-30.