Table Of Contents
2. The Beginning of a crisis
4. Effects of the global economic crisis
5. Benefits of the economic crisis
6. Tackling the economic crisis
The global economy is in the midst of the worst financial economic crisis over the past 50 years with severe consequences worldwide.
In the 1990’s a world wide expansion of market capitalism erupted through globalization which led to international agreements that reduced barriers to trade and capital flow. As a result there was a need for cutting production costs, finding natural resources and cheap labor and rapid industrialization of the 3rd world countries.
I think we can sum up the cause of our current economic crisis in three words — Easy Money and Greed. As for the quick spread of the crisis we can blame it on globalization.
The Beginning of a Crisis:
Over the years, banks and lenders were happy to lend money to people who couldn’t afford their mortgages. But they did it anyway because there was nothing to lose. These lenders were able to charge higher interest rates and make more money on sub-prime loans. If the borrowers default, they simply seized the house and put it back on the market and they can recover their money easily, since the market was very high and strong. On top of that, they were able to pass the risk off to mortgage insurer or package these mortgages as mortgage-backed securities.
Overproduction of goods caused by globalization (and especially vast investments in countries such as China and India by western multinational companies over the past 15–20 years, which greatly increased global industrial output at a reduced cost). Overproduction tends to cause deflation and signs of deflation were evident in 2008 and that could be one of the root causes of the world economic crisis.
The scheme worked well, but it reverses course and is now coming back to hurt everyone with a vengeance.