Is The World Economy Heading For A Sleepwalk ~ The International Finance

Friday, 21 September 2018

Is The World Economy Heading For A Sleepwalk


Experts are of the opinion that the world economy is heading towards a situation that is more or less similar to the financial meltdown that took place in 2008 through 2009. The warning was given by Gordon Brown, the former prime minister. It is also being anticipated that the world economy is becoming even more vulnerable with every passing day.

Brown went on to say and offered a “scathing analysis” of how things had not been resolved and continued to lie unattended since the meltdown took place in 2008-2009.

Brown was stated as saying “We are indanger of sleepwalking into a future crisis”. Unless there is change in the approach and the manner in which these problems are addressed, chances of a repeat 2008 are very high. Also, he cited that the chances of interest rates reducing are far less now as compared to what it was a decade back.

There was no guarantee that finance ministries across the globe would be allowed to enhance public spending or for that matter cut back on taxes. Most importantly, there was no guarantee that China would play an instrumental role in offering stimulus towards the same.

Brown also went on to say that “Trump’s protectionism is the biggest barrier to building international cooperation”. Since a lot is being said about the trade war and was launched by the United States against Beijing, China, it is being anticipated that China may not be as cooperative as expected following this exercise.

Brown also went on to say that due to the lack of “warning system” that monitors the flow of finances in various sectors of the economy; the meltdown may assume a greater shape. Also, had the monitoring system been in place, it would have been easier to deal with the impending crisis and work out terms to tame the same.

Ever since, experts have got a clue about the impending financial crisis, it is being said that the banking system has undergone some change. For instance, the banks are being asked to hold on to their capital so that in the wake of possible losses, these banks can be protected. As such, a system of bonuses has been launched so that bankers do not get tempted and can prevent themselves from incurring losses.


Housing market – the root cause for 2008 meltdown


The financial crisis that caused upheavals in the economies across the world was mainly due to the housing market bubble that burst leading to subprime mortgage crisis, which led to the downfall of Lehmans. However, Brown was of the opinion that it is quite likely that the reason may not be the housing market this time but causes other than that.

He also went on to say that “In thenext crisis a breakdown of trust in the financial sector would be mirrored bybreakdown in trust between governments”. Most importantly, chances are less likely that there will be cooperation among all like before, instead, the blame game maybe pronounced.

He also went on to say that the tendency to borrow from other governments was not of much help because the stimulus was not adequate and as such, it failed to foster growth of the economy.

When he was asked the consequences that UK might suffer due to the “loosening of regulations” by the US government, his spokesperson stated “In recent years we have reformed regulation of the city, and put in place an incredibly robust system, one of the most robust in the world, at the same time making sure it’s global competitive. We’ve taken action ourselves to make sure that our system is resilient and robust”.

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Amit Singh is a founder of Theinternationalfinance.com he share his immense knowledge of Finance in this blog.

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