BD needs to find a safe way to balance and stabilize the global economy
Dr. SM Jahangir Alam :
The global financial sector and economic recession started in 2007 was mainly due to the housing bubble. Added to this was an aggressive risky lending regime in the US sub-prime mortgage market and lax regulation of the financial sector.
This start of recession in the financial sector and the economy spread to all those industries that were directly or indirectly associated with the risky transactions of the financial sector.
The first signs of trouble appeared in 2007. But rather than addressing these symptoms, policies were adopted that widened and deepened the problem, leading to the global economic recession of late 2008.
The economic recession automatically spreads across the world very quickly although the global financial sector, the global economy and the developed economies are the most affected.
Governments in more severe recessions adopted various policies to revive their financial sectors and core economies, including bailing out large industrial and financial sectors with public money. The worst part is that even in 2015, we have not fully recovered from this recession.
The gap between its imports and exports, known as the current account deficit, has been exported by the United States to other countries over the past few decades, providing the catalyst for recession.
As the US dollar is the world’s reserve currency (currently), that country’s government has been adopting a loose macroeconomic policy for a long time.
Because of this policy, US fiscal deficits are covered by other countries whose import-export trade is positive (they lend dollars to the US at low interest).
In the 1980s, after the domestic recession, US central bank chief Paul Volcker controlled inflation, but the US did not adopt that policy.
Even according to the European Union, it has not adopted any equality policy of its own.
The budget policy was equal under Clinton but there was no equality in income and expenditure in the private sector. Later, under Bush, no equality policy was adopted in both the public and private sectors.
The easy money flow (liquidity) that occurs in the market due to loose monetary and budgetary policies of the US government is invested in various uncertain directions in the hope of extra profits.
As a result, (1) a commodity and asset bubble (commodity and asset bubble) was created (the depression caused by the bursting of the dot com bubble in the late twentieth century in the United States economy was somewhat mitigated by the creation of the housing bubble). ; (2) unregulated easing leads to equity buybacks (buybacks increase the company’s return on equity. But on the other hand, the fragility of the corporate financial sector worsens); (3) Loans are made in such cases where the ability of the borrower to repay the loan is uncertain; (4) Investors in complex and ambiguous derivatives in which the amount of risk is deliberately undisclosed.
Because the entire world system is interconnected due to globalization, this trend in the US financial and industrial sectors spreads to other countries, including those countries that have adopted policies of fiscal and budgetary balance.
The results of loose US monetary policy are automatically reflected in the economies of other countries whose currencies are pegged to the US dollar.
Middle East is one of them. Commodity and asset price bubbles The wealth created by the asset bubble has not been invested in reducing world poverty and environmental damage and mitigating climate change, but in areas where these assets have been invested, including private jets, cruises, palaces, and other extravagant pursuits.
Areas that only compete with wishful thinking and fairy-tale-like construction projects, artificial islands in the Gulf (although with coastal hydrodynamics that behave like organisms on a different planet), very expensive art including golden sheep and Kate Moss golden statues. Now all these wishful dream systems are on the brink of destruction.
The bursting of commodity price bubbles started a cycle that made people unable to pay their debts and which in turn made markets ineffective and stopped new lending. This new loan helped pay off the old loans that had matured.
Small economies like Bangladesh are by no means immune to long-term global economic damage or negative policies from large economies, which in turn affect a large part of global stability.
And so at conferences like the G-20, these smaller countries need to come together to argue very strongly to restore stability and economy, and to abandon those policies (loose policies that create an environment conducive to bubbles by increasing free liquidity) that are causing the destruction of the global economy ( such as laxity in risk management and inadequate regulation and maintenance).
A safe path to balance and stability of the global economy would be much easier if global liquidity growth could be somehow linked to global GDP, or if global GDP growth or decline would follow the inverse cycle of liquidity inflows and withdrawals.
The International Monetary Fund (IMF) (after reasonable adjustment and equalization of member states’ voting rights and their share) can be empowered to lead the system.
The institution will adopt policies at the apex of all global financial sectors. Building public opinion for this new system (currency control will be based on global GDP rather than gold) is not easy. We need to start discussions now to create public opinion about this.
(Author: Bir Muktijoddha,fFormer Tax Commissioner and Director-Bangladesh Satellite Co. Ltd.)
