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World Economy Review

Article review on world economy

Initially the author has tried to compare today’s economic conditions with the 1929 stock market crash. Later on he has tried & given examples from every possible crisis in the history.

Certain statics:-

The IMF’s .base case? is that American and European banks will shed some $10A trillion of assets, equivalent to 14.5% of their stock of bank credit in 2009 In America overall credit growth will slow to below 1%, down from a postwar annual average of 9%. That alone could drag Western economies’ growth rates down by 1.5 percentage points. Without government action along the lines of America’s $700 billion plan, the IMF reckons credit could shrink by 7.3% in America, 6.3% in Britain and 4.5% in the rest of Europe.. That will cushion the world economy but may not save it from recession.

Reasons for unwelcomed recession

1. Oil prices

2. Tighter credit

The author says that history teaches an important lesson: that big banking crises are ultimately solved by throwing in large dollops of public money and that early and decisive government action, whether to recapitalize banks or take on troubled debts, can minimize the cost to the taxpayer and the damage to the economy.

The long-term effect of this mess on the global economy:

1> Western finance will be re­regulated.

2> The balance between state and market is changing in areas other than finance.

3> America is losing economic clout and intellectual authority

(China’s vice­ premier, Wang Qishan, reportedly told his American counterparts at a recent Sino­ American summit that the teachers now have some problems.?)

The author has laid emphasis on Governments role in the crisis. it says govt. bear direct responsibility for some of today’s troubles. Misguided subsidies, on every thing from biofuels to mortgage interest, have distorted markets. Loose monetary policy helped to inflate a global credit bubble.

Role...