1Reviews and everything / Financial Crisis Essay
.docAlex Kvartalny @ flamedragon27.blogspot.com
Group 501
Essay on the Global Financial Crisis
The word ‘crisis’ as part of the global financial crisis, or credit crunch and economic meltdown, could easily have been the second most popular word on the news after the definite article in 2008. Today, as recession loosens its grip the usage of this word is decreasing but the aftermath of the disaster is still to be considered so as to prevent future crises and deal with them effectively, should they occur again.
The current global financial crisis is not a unique phenomenon and human history has known other examples, the great depression of the 1930s being the most vivid of them. However, since the level of globalisation nowadays is generally considered to be the highest throughout the known history it can be viewed as one of the most difficult to deal with.
The current crisis did not come out of the blue. There were early warning signs predicting that it was doomed to happen. The experts claim that the direct cause of the financial crisis was the unregulated monetary policy of the United States where credits, and especially mortgage loans, have become accessible for everyone, even for people with insecure jobs that could not guarantee paying the loans back. This provoked enormous demand and active development of manufacturing, which, in its turn, led to high food and raw material prices. That’s why at the beginning of the crisis oil prices were more than 140$ a barrel. High fuel costs added to rising farming costs and falling food supplies. The world faced a huge man-mande food crisis. The World Bank estimates that at least 100 million more people were driven into poverty by these crises. Later world stock markets would fall and financial institutions would collapse.
To add to this array of causes – internal and external – to account for the emergence and severity of the current crisis we can also bear in mind the fact that after 1971 the dollar wasn’t linked anymore to the US federal gold reserve and it created a possibility of unlimited printing of dollars. And the US government and the Federal Reserve System, in particular, used this possibility. From 1971 till 2008 dollar supply in the world increased many dozens of times largely exceeding commodity output. A big soap bubble of money was created and this financial pyramid had to fail some day, some claim. This day has come when a lot of common Americans found themselves unable to pay their mortgage loans because Central Bank’s rates of interest on credits had been raised from 2-5% to 15% and, as a result, a lot of American families had to abandon their idea of getting cheap accommodation on credit. Real estate prices began to fall down steeply and the banks stopped making loans. Some big financial institutions, like Lehman Brothers – America’s largest bank for example - have gone bankrupt. Later the crisis on the market of mortgage credit lending spread to Europe and the world financial system has become involved in it.
Some believe that the collapse of the American mortgage loan markets was principal but not the only reason for this crisis. There have been a number of theories about the real reasons for the global financial crisis. One of them described in the movie Zeitgeist vividly illustrates that the monetary system is inherently corrupt and it actually deliberately provokes global crises.
According to the creators of the movie the life of our society is defined by social, political, religious, professional and other institutions at the heart of which lies the monetary system. It also tells us about the Federal Reserve which was established in the 1913. It is a private organization, which belongs to the largest private banks of the USA. Their business is to print money; it means that they have a unique right to put dollars into circulation, determine money supply and the terms of its emission. It is clear then that having such a unique right these private banks can rule the world, because as Mayer Amschel Rothschild, one of the founding fathers of the FRS, once said: “Give me control of a nation’s money supply and I care not who makes its laws”. The two world wars, Pearl Harbour and the war in Vietnam contributed the most to the establishment of the banking cartels which sponsored both sides in the conflicts for the sake of even larger profit.
The Fed makes money out of thin air not covering them by any commodities which in reality money should represent. The “corporatocracy” influences the world we live in enormously and all countries become influenced by the global monetary system and its agents – the World Bank and IMF. It uses three levels of influence and includes such terms as economic hitmen and political jackals. If a politician of a country is not corrupt they have an alternative method to deal with him by means of assassination.
The fact that every dollar is produced on debt makes the system inherently corrupt. Profit is gained at all costs to society and environment. People are driven into economic slavery, into ‘the world that has been pulled over their eyes to blind them from the truth – that there is no spoon’.
The scarcity that the system perpetuates is artificial since the mechanisms of bankruptcy and inflation have initially been built into the system.
It is difficult to circumvent the system because of the self-preservation principle. Large corporations control the market and oppose innovative solutions. Should they allow innovations take place they will lose their inflated importance.
All the political systems, the creators of the movie tell us, meaning Fascism, Communism, Socialism and others are basically the same and represent various forms of economic slavery of the many for the benefit of the few. The Venus project with technology at its heart is a possible solution to the predicaments. The resource economy that should, according to the director of the film, should replace the existing world order will make 90% of professions redundant because at its core lies pursuit of professional excellence for the sake of pleasure rather than profit. If you eliminate money you will also eliminate the causes of crime and thus make laws redundant. The masterminds of the theory suggest doing the following in order to create a better society: stepping out of the system, embracing the ideals of a new society, avoiding military service, avoiding working for the large banking cartels, censoring large media outlets.
The crisis had a huge impact on many countries. Besides economic slowdown, people being laid-off, thousands of projects, be it scientific, research or finance, being paused or stopped it caused a lot of stress among the population of different coutries. People had to worry about what future had in store for them. Many bankers have been deprived of their bonuses. China, though having a more closed economy, suffered as well because its economy heavily relies on export and as the Americans who import a lot from China started buying much less and even selling things like additional cars, huge houses the Chinese were effected. The developed countries had to bail big corporations out to save jobs and prevent things from getting even worse. 1 trillion USD has been allocated for that at the London 2009 G20 summit. And this is exactly the same amount of money that Russian stock markets lost because of the crisis. As the economy of Belarus is linked to the Russian economy to a high degree the meltdown has affected my country as well. In order to save the situations, large chunks of money were borrowed from large international institutions and from Russia as well.
In regard to the functioning of the global financial system and its institutions the global financial crisis has revealed that the old system of economic cooperation has been intricately flawed and that a new order has to be established. The system needs to become more transparent and more concrete steps need to be taken to assist developing countries. We must now use that confidence and capacity to achieve what it is our responsibility to the citizens of the world: to build sustainable growth for all.
Experts think that for Belarus crisis has become an opportunity to become more open towards the west since as we can today see the integration between Russia and Belarus has been ineffective and the Belarusian leader started looking for other options of solving the existing problems. Certain steps have been made to liberalize our economy which is seen as a positive sign by many. Speaking of opportunity I would like to add that in the Chinese the word crisis is thought to be composed of two syllables – risk and opportunity. We have seen that it can rejuvenate economies and make everyone think of the real ways the economy is run. However the fact that the state intervenes in the economy contradicts the laws of the free market and capitalism as such. Government regulation and protectionism are thought by many to be incompatible with the capitalist principles of market economy.
What can be done in order to find a way out of this crisis and to prevent such situations in the future?
First of all it is necessary to get rid of this huge amount of uncovered dollars. This will help to write off debts, to clean up balance sheets of many companies and banks from virtual money and phony accounts.
Secondly, it is clear that the era of free market has come to an end. The state should be more involved in the processes taking place in the national economy. This is true, first of all, for the USA; and we can see that the American government is nationalizing some banks and companies in order to avoid a complete collapse of its financial system.
Thirdly, the world economy should become more open and transparent; this can be achieved only by reforming the existing standards. Governments of different countries mustn’t create barriers for the global trade and capital flows. Egoism and protectionism should become things of the past; we should combine our efforts and cooperate in every field of activity.
Some experts also claim that the dependence on the single reserve currency can be very dangerous for the world economy in the future. That’s why Russia and China have come up with an idea of creating several strong regional currencies – in Americas, Europe, Asia etc.
It is somewhat difficult to look for a solution to the problem of financial crisis being a non-expert in economics. Besides the scope of the issue is so huge that it would require so much time and effort from a single person, not for a team, to solve it. I have some comments on the Zeitgeist movie. I find the possibility of the fidelity of this theory conceivable. However I can’t say that I’m very supportive of it because of the fact that it extols technology and tends to treat people as machines as if without souls and spirituality which have little to do with religions I must add. I like the idea of connectedness but in reality it is based on the material, let it be not monetary but still material and not the spiritual. It is up to every person to decide which side to take and as long as people are more inclined towards material there will be trouble, there will be wars, hatred and intolerance. I don’t know if I’m right here. I’m not an expert here either. It is simply the way I feel since I believe there is more to this material world and my life and lives of many others have proven it. The truth is out there and hopefully technology will help us find it.