Uncertainty and A Great Crash In The Global Economic Situation - Can We Avert Them?

There are many economists who have no hesitation in cautioning that a crash of mammoth proportions in the world economic situation is staring us on our faces. According to these experts, no one can stop the United States, the European Union and China from speeding towards the intersection where the crash is expected to occur. The caution of these economists raises serious doubts about the future of the entire mankind.

It is true that almost all of us do not like to discuss certain realities perhaps because we are afraid of even visualizing the impact of these realities. While this is the attitude of people like us, leaders of the nations are more worried about their re-elections than on repairing the ugly situations on the ground. They are ready to sacrifice even the health of the economy and the future of the next generations for the sake of getting re-elected. They are happy to find ad hoc and temporary solutions.

The American leadership does not seem to understand that if unemployment benefits are taken off, it will adversely impact the demand side of their economy. When the demand side is affected in the US, it will shake the global economy. The European stability and the Chinese growth will be mainly affected. Already the European Union is feeling the heat. The job market in Europe is already in tatters. Experts expect that the exodus of a large number of Irish people to Australia and other places will continue. Germany is the only country where you have relatively more jobs, thanks to BRIC nations who have been importing machine tools from them.

Everyone believes that China is capable of propping up the global economy. But, the fact is the Chinese economy is in a phase of transition. China wants to break their dependency on exports and become a consumer-based economy. China has realized that their growth should not depend on the American trade deficit.

But, when they are attempting for such a consumer boom, it is turning into a real estate bubble. In more than 160 cities in China in which more than one million people live, constructions of skyscrapers and mega-malls are taking place on a large scale. There are allegations that local political bosses and private developers are able to get attractive deals with giant state banks. Big banks are said to move loans from their books into phony trust companies. This strategy is said to be adopted by these banks to evade official caps on total lending. This fact has been corroborated by a Moody's Business Service report that states there is a concealment of about $0.5 trillion dollars by the Chinese banking system in loans that can be termed as problematic loans. Another rating agency has reported that 30 per cent of Chinese banks' portfolios are non-performing loans.

Chinese families are naturally attracted by the speculation in the real estate sector. Residential housing investment in China has risen to 9 per cent of the GDP. It was only 3.4 per cent in 2003. One can not imagine what will happen to Chinese banks and the Chinese economy if the levels of speculation are not controlled and if the real estate bubble bursts.

If the Chinese economy is adversely affected, the economies of Brazil, Indonesia and Australia will be greatly impacted because they are the major suppliers to China.

So, what will happen to the global economy if these three pillars, the US, the European Union and China converge at the same intersection and have a synchronized crash, is no one's imagination.

Raman Kuppuswamy has been writing highly informative and interesting articles on various topics. Kindly visit http://dreamdamodar.hubpages.com/ and read his articles on various other topics.


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