The global financial and economic crisis that stormed the world in late 2008 and its aftermath results from global governments’ solutions to combat that crisis has worsened global economic outlook as revealed in events in Europe and the United States.
From a crisis that was stemmed from a credit crunch to one that has evolved into a debt crisis, has caused several governments in Europe to fall. Its repercussions, still resonate in the financial markets and economies of the developed countries, are far from over.
What had been touted as “recovery” in late 2009 was in fact the beginning of a more serious crisis anyone could have never imagined. The problem is that those very root factors that cause the crisis have not been resolved.
The United States’ and Europe’s prevention of the collapse of their financial system in 2008 by bailing out their failing banks and financial institutions with taxpayers’ monies, and in the process transferred trillions of dollars in banks’ losses to their own balance sheets, had not only postponed the collapse but also plunged their economies into a debt crisis, which has not only worsened their financial and banking system but has in turn caused a lost of confidence in their governments as well.
The Debt Crisis
The debt crisis is still in its early stages. By all indications, evidences are revealing that the ongoing crisis is heading much deeper then anticipated, and its eventual culmination into the possibility of a financial collapse of heavily indebted countries such as the United States and Europe cannot be ruled out, although not imminent. With economies largely connected due to globalization, the ensuing United States’ and European Debt Crisis and the economic devastation that will follow will have disastrous consequences for the world at large. This is especially so for economies that are highly dependent or inter-dependent on the United States and European markets for their exports.
The debt crisis, characterized by the heavy indebtedness of the developed economies such as the United States, Spain, Ireland, Greece, Italy, Belgium, Portugal and a host of other European countries, is another dimension to the current crisis of the economies in the developed world. Of all the countries which are staring at a financial collapse in the eye, the case of the United States is particularly precarious. The United States Federal government has been heavily relying on debt raised by selling its Treasuries to other countries, particularly China. The sovereign debt held by the United States Federal government had then reached its Congress-approved debt-limit ceiling of $13.4 trillion. However, as of August 2, 2011, Congress raised the debt-limit ceiling to $16 trillion. On November 21, 2011, Congress failed to reach a deficit-cutting agreement to find at least $1.2 trillion in budget savings over the next 10 years.
As the value of dollar declines, more and more governments and central banks are reducing their dollar reserves and investments in United States debt and instead taking refuge in gold and silver. Thus, the dollar is steadily losing its pre-eminent position as the world’s reserve currency.
Andrew Michael Teo 