World is now at an undefinable stage of the economic crisis. The more we analyse the current economic crisis, the more frightening it becomes. World economies including United States, European nations and developing nations like Brazil,Russia,India and China (famously known as BRIC) have no clue when this economic crisis will end. The other day, G20 nations met and agreed for a stronger regulatory actions on so called "Bad debt or Badly behaving banks". They yelled out for financial reforms across the board and a lot more stimulus packages.
Personally, i dont think this in any way addresses the main aim of bailing out countries from the present financial crisis mainly because regulating banks and financial reforms are steps that should be taken by countries to prevent another such crisis from taking place. So its more of a prevention of the disease occuring again rather than a cure of the current disease. I would suggest to first cure the present crisis and then we can think about its reoccurance. Secondly, the stimulus packages that the countries have promised. With the present scenario, countries have very little or no liquidity(read as "money") left with them for yet another stimulus packages which is essentially giving money to people through banks as loans or by any other means and encouraging them to spend more money. The interest rates in US and many European nations have virtually come to zero and thus they have no more room for any kind of monetary policy.
This leaves the US with no other way than to just wait for the economic crisis to end by itself and then hope for some economic growth. Also, the growing unemployment rate(now at 8.5% in US) is a cause of big worry. Less jobs means less spending and that forces less industrial production and which in turn leads to more layoffs. Developing nations like China and India are better placed to face the crisis but with time running out, they will also be affected badly.
One of the reasons for this crisis not ending quickly is the relatively low consumer spending in US as many of them are saving for an uncertain future.In January, the savings rate climbed to 4.4%. In February, it dipped slightly to 4.2%. Both were well above the negative 1% rate for 2006 and the negative 0.5% rate for 2005.In a $14.2 trillion U.S. economy, a 5-percentage-point increase in the savings rate -- and therefore a 5-point decline in consumption -- amounts to $500 billion.So, one way for the crisis to end is by other developing nations like India compensate for this $500 billion gap in US spending. That is people in India,China need to spend more so that the whole world can get out of this mess, else everyone will suffer. But countries like India and China are traditionally inclined to saving more.
That is why, even if economic crisis ends this year, the Americans and Europeans will want to save more to prevent themselves from such a scenario again. This in turn would lead to low economic growth around the world. This may increase dramatically only when some other country takes over from US as the leading economy in the world. That is why, many say the future of the world depends on how well India and China grow. With their population, even if a small fraction(about 30% of total American population) leads life like a average American, the world will grow much faster than what it was did in the past 2 decaded prior to the economic crisis.
So, the post economic crisis seems very challenging and would slow going till hopefully China and India take over. Future of the world lies in the hands of the Indian and Chinese citizen!!!
