IIMS Symphony

Introduction: The Global Economy’s Problem

The global recession began in 2008. Some analysts have labelled it a Great (or long) Recession, others a Lesser Depression. Europe has been hardest hit although the slow down has also been clearly felt in the U.S.

The global economy’s melt-down has meant that economies have experienced very weak economic growth. The consequence of this has been severely reduced tax receipts and therefore governments have not been able to fund public services and welfare. As their economies have regressed public spending as a proportion of GDP has automatically dramatically increased without any policy changes made by governments. This has meant that governments have felt forced to then cut public spending dramatically while also increasing taxation. The consequences of not doing this would be unsustainable borrowing in order to plug the gap between public spending and tax receipts.

The Global Economy’s Instability has resulted in Political Instability

The global recession has caused governments to change in several nations including Spain, France, Britain, and Greece. However, if we look closer at some of those nations we instantly see that it is no ordinary change in government. Greece is the hardest hit nation of all. It is unable to pay its debts and keeps needing further and further financial support (bail-outs) to function. But these bail-outs are conditional on further public spending cuts. Therefore Greece’s public spending cuts are more severe than other recession-hit nations. Riots months after month and year after year are hurting Greece. And its two main political parties now have similar levels of public support to that usually associated with minor parties. Meanwhile in France the Socialists are back in power with a promise to impose a top rate of tax of 75% in 2013. This is the highest rate of any major western nation.

While it is true that austerity is very much a response to this crisis… sluggish growth has also been met with calls to stimulate the economy. So for example, in the UK banks are being made to lend more to businesses simultaneous with public spending cuts to sort out the public finances.

Conclusion

Many differing factions in society have been blamed for the global economy’s crisis. Too much private and public borrowing, bankers, the rich. For example in the U.S. the Occupy Wall Street Movement clearly faults the rich and bankers for the crisis and this movement succeeded in spreading across the western world in 2011, although it is clearly less prominent in 2012.

The end to the recession is not yet in sight. In the UK (in 2012) the government and even the Labour Party opposition, are saying that more public spending cuts (and even more taxes) are needed even beyond the next election in 2014 or 15.

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Currently, global finance is passing through a bad phase due to downtown in the world economy, especially Europe. With the domination of the debt crisis in Europe, the warning bell is sounding all over the world. The European crisis has not been resolved and investors are wondering about how things will work and when the crisis will be resolved. Things are getting tougher for investors, especially small investors and the effects of European financial crisis is transforming into global financial crisis.

It is important to learn three vital things from the crisis of the current global finance. First of all, the problem is much bigger than that is portrayed by the government and the media. The extent of debt has increased considerably and there seems to be no sure fire solution. As a result, the effects of current crisis in global finance will last for a long time. The main problem of European crisis is unfunded liabilities and hidden debt that has crossed the unusual level of 116 trillion US dollars. Hence, investors must keep patience and stay clear from putting their money in any risky sectors such as stock market.

Another major problem is government is seeking short-term measures to tackle the problem instead of taking long-term measures to curb the real problem. European governments are keen on taking short-term solutions to make things look measly. However, the current crisis of global finance is a real threat and needs strong and long-term measures aimed at resolving the real debt problem.

The volatility in currency markets is making the environment more risky. Every time a news flashes about European market, traders jump in the market to take their position. However, novice traders are real losers in such situations. It is the major players that are capitalizing short-term swings and dominate the market.

In order to avoid getting ripped off in the current crisis of global finance, it is advisable to stay clear from all sorts of risky investments. Currently, silver and gold are a better investment opportunity; gold is a rock solid investment for short-term as well as long-term; so secure your money in gold and wait for the revamp in the world economy.

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The global finance industry has been though a lot of difficult times since the year 2008. This is why there has been a global recession, causing numerous people to lose there jobs due to lack of job security. Economists and financial experts from around the world have been working tirelessly to find out a possible way of reviving the global finance sector and making it as good as before and even better. Just like there have been several conferences and measures put in place in order to deal with global warming, the global financial fraternity has been trying by all means possible to perk up the global financial status. The good news is that there has been an improvement and compared to 2008, things are slightly better.

The current global finance state is shaky. There have been fluctuations this year with unemployment rate in the US reducing to 8.0% in April from 8.5% in the past year and then increasing to 8.3% in July. Countries like Greece and Spain are among the hardest hit with Greece featuring an unemployment rate of 21% as of March 2012. Spain is worse off than Greece with an unemployment rate of 24%. This is really a huge percentage of the countries’ labour force. Economists warn of a second recession with latest predictions standing at 31% probability, up from 25% that was predicted last year. Globally, big financial institutions are falling out and banks are even borrowing so as to lend its customers.

In conclusion, several financial analysts from all over the world are closely and constantly monitoring the global finance progress and there are low hopes that the future holds a better situation, especially because most of the ideas and models discussed in conferences are not followed. This has also been an experience that has helped experts clearly decipher the financial field and what measures to put in place in order to prevent such a downfall in the global financial status ever again. Nevertheless, the situation will only be salvaged if governments give a more serious and benefiting approach.

There has been a noted increase in the financial growth of many Far-Eastern states. This growth has made certain nations become world players in the financial global markets. There are various reasons why this growth has come about.

One of the main forces that are fueling financial growth (in the globe) is the fast-paced technological revolution that is unfolding. Technology (internet, computer hardware and software, mobile technologies like Smartphones) has helped to make condition of online business fast and very profitable.

The spread and growth of the internet is fueling new financial growth as new markets are integrated into the system. Ten years ago, only industrialized countries could truly reap the benefit of online financial activity. Far Eastern states/countries, which did not fully engage on this online platform, were still struggling. A decade later, the growth of the internet into new markets (3rd world markets) has meant more online business.

Now days thanks to the huge changes in the market, individuals can actively participate in financial growth of their respective countries. They can actively engage in the international forex market. This market sees billions of dollars being exchanged every single day.

The mixing of technology and the financial markets has given birth to 24-7 hour market. The market (international) never closes, and it now never sleeps. Trading is done in a fast easy manner. Individuals in one country can have active roles in markets in other continents.

With financial growth, there also come difficulties in regulation. The increase in financial players around the world has meant a rise in the complicated nature of the international market. In addition, the interconnection of markets means happening in Tokyo stock market can have drastic effects on the New York stock exchange.

These challenges are being tackled with more cooperation between nations, more strict rules, and better institutions to enforce the laws.

Economy as a science examines how people meet their endless need using the scarce resources available to them. It essentially, it deals with resource allocation. Because of the fact that people needs are endless against few resources, then the issue of prioritization comes up. People have to decide what needs to meet first and what needs to meet later. As a mechanism of deciding the well being of people, it concerns it self with such issues as price determination through interplay of demand and supply forces in the market. This is commonly known as free market economy.

Economy moves in phases. There is recession phase; in this phase the economic activities are shrinking, mainly because of the declining purchasing power of the citizens. The rates of unemployment get high while the supply of goods outstrips demand. Prices fall and businesses begin to feel the heat. They respond by retrenching employees and closing some of their production lines.

Depression phase
This is the worst phase. The purchasing power is at its lowest. Unemployment is all time high and the purchasing power is at its lowest. The economic growth is almost zero. Businesses here close down. The recovery phase signals improving economic conditions. The rates of unemployment start falling. The purchasing power improves. Businesses start recovering as well.

Economic boom
At this phase, all factors of production are fully employed. Jobs are readily available although the normal unemployment persists. Businesses are at their best. The purchasing power is high. The economic growth is high.
Currently the economic growth is slow. For one, it is from a kind of recession occasioned by credit crunch in Europe. This means that, the purchasing power is still very low and that all factors of production are not fully employed. Most people still do not have jobs. Therefore the production rate is low. Supply is still lower than the demand. All this has been occasioned by lack of sufficient credit in the market specifically in the banking institution. However, there is light at the end of the tunnel and best times await the economic growth a head.

In the last four years or so, Europe continent has experienced a financial crises never experienced in the recent times. The banks which are key financial drivers or financial growth custodians if you like have experience credit problems for days on end leading to insufficient credit in the economy. There is still this issue of mis sold payment protection loans which are estimate to have gotten a lot of cash from insurance owners without their knowledge. Now that most insurance owners are aware that they have unnecessary PPIs, they have sought compensation from the financial institutions. Banks are also now required by low to pay such mis sold PPIs. Where does this leave the banks?

The banks are left without or with very little credit. This means that there is too going to be very little credit in circulation. What this does effectively is bringing down the ability of the people to purchase. It also means that, whatever money the people have they consume it all and therefore no savings. For any economy to experience meaningful financial growth, there must be savings which will be in turn be injected in the economy through investment.

Despite the fact that European countries have formed a trading block in the name of European Union to enhance their power in the market, most of its member countries continue to experience financial crises, so serious that they have to be pulled out of it by the other members. The adoption of the common currency; Euro does not favor some of its members whose currency might be stronger. They feel that it makes their financial growth slower compared to theirs.

The rate of inflation is also hitting Europe so hard such that it cannot realize financial growth. The fact that so few factors of production are now gainfully employed translates into that, so few goods are being produced against a high demand. Importation of some commodities from foreign countries is also bringing with it imported inflation.

The foreign exchange rate plays an important role in a number of economic issues by deciding the value of any currency that can be found on the international market. Doing business with other nations can offer a number of advantages to domestic industry and businesses closer to home, depending on the foreign exchange rate and how it might favor such dealings. Any efforts at importing or exporting of goods and services may find themselves heavily influenced by the rate of currency exchange, making such an indicator a major factor in any current or future economic growth.

Foreign exchange rates that allow any industry to sell its products to overseas with greater or lesser expense plan a crucial role in determining the degree of demand, if any, each foreign market might have for such products. Rates that are favorable for exports will ensure that industries are able to tap into a far more lucrative international and global market when it comes to selling their products, generating sales revenue that will be of much benefit to the market conditions and overall economy of their home nation. Foreign exchange rates that make doing business overseas, with other countries and with foreign markets less favorable can result in many lost business opportunities and may contribute or result in a larger degree of economic stagnation.

Markets, commercial opportunities and even the larger global economy are all dependent upon a few key factors that influence any business dealings. the rate of exchange when it comes to dealing in different currencies is one such factor, creating far reaching consequences and ripples throughout many markets should the rate undergo even minor changes. The foreign exchange rate is a basic factor in any international business dealings, importing or exporting opportunities and a number of other different business issues that are essential for any economic or market growth.