Global Financial Crisis Helping to Sink?

Market Leader informed

The search for ways out of the crisis in the western world hasn’t yielded any clear answers to what path to escape will be appropriate. Many western economists offer demand stimulation from the state budget and tough monetary policy as an urgent measure. Such steps might have a softening effect in the near term but, given long-term prospects of development of western countries they have to increase productivity in order to ensure large-scale emergence from the crisis. Today’s situation shows quite clear similarities between the economic position that European countries and the US have ended up in and the situation that emerged in Japan as a result of the 1992 crisis.

 

At that time Japanese economy was powerfully hit and hasn’t been able to fully recover yet. In many respects gravity of consequences of that financial crisis for Japan results from not only excessive loans and tough regulation of the financial sector but also rapid growth of young Asian economies, its competitors, in the Asia Pacific region. The country’s export capacity started reducing under pressures from its neighbors, investments which were the main factor of rapid economic growth exited economy, productivity levels significantly fell because they weren’t based on innovative technologies. The financial crisis only catalyzed Japan’s decline rather than served as its main cause. Modern BRIC countries might as well take over the role of leading global states pushing western countries into the background.

the fall of the dollar index over the past half-year

 

The United States already tried to overcome the crisis by introducing tougher tax and monetary policies during the Great Depression. An increased role of the state surely helped overcome the crisis but productivity growth rates fell for a certain period.

A tough monetary course and credit stimulus will only put off development of crisis phenomena for an uncertain period of time but cannot become measures to overcome them. The west might slide into long years of inertly progressing growth of loan debt which has already reached staggering figures. Monetary policies of European countries and the US should prevent growth of liabilities. Some ease-up of control over inflation might help return the financial system to a state of balance.

Western countries should try and regain positive dynamics in productivity growth through simplification and reorganization of fiscal systems and introduction of incentive measures. The US and Europe can avoid walking the same path that the Japanese economy has taken only on condition that they can make their own economies work in an efficient and productive manner, stop relying on demand stimulation that only offers short-term effects.

 

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