A Decade of the Global Financial Shock: The Aftermath

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On January 27, 2010, Barack Obama officially declared the stabilization of U.S markets. Most of the stock markets were around 75 percent higher than at the time of financial breakdown, but the real challenge was during the 3 years before this. We all know about the Subprime Mortgage Crisis in U.S which led to Global Financial crisis in 2008, and this year it’s about to complete its one decade! There are a bunch of articles on why the crisis happened, so for a change let’s have a look on what happened after the crisis happened.

Affect on GDP dictatorship:

The financial breakdown created fire in the forest of global economy. The leadership to drive the world economy also changed with the emerging nations staking 69 percent of global GDP from 2007 to 2014, which was previously the territory of advanced nations.

Even after government backed regulations like bailouts of banks, expansion of fiscal and monetary policy, the recovery pace remained sluggish. Like in U.S, the unemployment rate hiked due to the crisis. In the beginning of 2007 it was marked at 63.3 percent which reduced slightly only to 59 percent in July, 2014.

However the regions like Asia and Africa grew the most with GDP rise over 50 percent. Also, the nations like Hong Kong, Singapore, South Korea and Taiwan (The Asian Tigers) along with Japan and China achieved the aggregate GDP growth of 48.13 percent from 2009 to 2014 which was only 5.47 percent during the period of crisis. The lowest growth was marked by Europe with only 10 percent hike in GDP, as U.K failed to adopt strict fiscal stimulus plan during the financial crisis.

Change in Regulations:

As per an article in The Guardian, Basel-3 was implemented by Basel Committee in G20’S London meeting in 2009, which led to the fresh banking regulations and restrictions on the world banking sector. The policy for keeping more reserve in terms of capital (like more than double the capital should be hold by an individual bank) applied to counter the adverse effects of “Too Big to Fail”.

The growth framework:

 The crisis has also changed the prerecession ideology of aggregate economic growth through free trading with different countries, to challenge it for revolt of the nationalism. Like the free trade will benefit the overall economy but the advantages are absorbed by the tops and the cost is barred by the lowers due to political showdown. So, that particular class will accept lower growth rate than lower wages. That protectionism has got full stimulation in U.S and U.K through the Donald Trump in U.S and Brexit in Britain.

The Chinese dragon adopted a serious framework of fiscal policies, which ended in job creation and build up of infrastructure, which led the hike in growth rate rapidly. With that nations exporting large volume of goods to China like Southeast Asia, Australia, Africa and Middle East also boosted their financial stability. At the end, “Everything that fell together rose together!”

By Devanshee Dave

[email protected]

 

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