Craig W. Johnson
Principles of Management
Professor Charles Muse
June 07, 2013
Following a period of economic boom, a global financial bubble burst into a crisis in 2007-2008. Some of the world’s largest financial institutions collapsed. With the resulting recession, many governments of the leading nations in the world developed complicated bailout and rescue deals for the remaining financial institutions that were still above water while imposing severe economic sanctions on themselves. The bailouts have also led to charges of hypocrisy due to the apparent socializing of the costs while privatizing the profits. Moreover, the institutions being rescued were typically the ones that got the world into this trouble in the first place. The problem for smaller businesses and the working class was that these options were not available to them during this crisis.
The stock markets suffered extreme declines, sometimes as much as one third of companies’ value. Global taxpayer bailout amounted to almost 15 trillion dollars. In the US taxpayers bailed out the banks and financial institutions with rescue deals amounting to almost 10 trillion dollars. The UK and other European countries suffered taxpayers’ bailouts of almost 2 trillion. These extreme numbers by comparison dwarfed some of the other types of debt held globally. For example, individual mortgages, world debt, and even military spending.
In theory, this global crisis could have been averted because there were many warning signs that issues existed that were unexplained for decades. However, during the “good times” no one wants to hear about an impending doom. The questions; therefore, is how is this crisis affecting us now, what are the implications that are happening now, and are we doomed to repeat ourselves.
The global economic recovery remains stuck and seemingly cannot get out of its own way. The severe economic sanctions imposed are proving to be a detrimental element on growth and doing very little to improve consumer confidence. “Monetary policy continues to shoulder the burden of limiting downside risks and has kept financial markets buoyant even in the face of weak growth prospects” (Prasad & Foda, 2013). Growth momentum remains weak in nearly all major advanced and emerging market economies. The upside is that the weak pace of economic activity has bottomed out in some economies. There are strong indicators that growth is probably going to be subject to small increments because of the possibility of backwash within the financial market and the euro zone debt crisis once again coming close to boiling over.
Germany and France’s economy remains weak even though the ECB’s intervention bought some time. However, because of the political power struggles within the European policymakers this grace period is quickly evaporating. There are indications that some progress has been made by Greece and Spain as far as fiscal and structural reforms. However, the pace of reform in other European countries has been too slow to indicate improved growth in these other countries. The projection is that these countries will continue to post lower GDP levels. It is also indicated that business and consumer confidence is still unpredictable, and financial institutions are unable or unwilling to provide the needed credit to bolster the recovery. The global economic situation can be upset and sent in the wrong direction by almost any change or dilemma, for example the outcome of the Italian elections and the debacle of the Cyprus bank rescue. According to Williams (2013), “political risks can be just as devastating to companies that fail to identify and minimize that risk” (p. 315).
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