Are We On The Verge Of 3rd Global Financial Crisis?

Well, that’s the vibe we have got after IMF’s annual meetings. We have got a hint of trouble at the recently concluded IMF annual meetings in Lima, the Peru Capital. You can draw comparisons to the weather in this city and the current global financial state – apparently both were gloomy.

IMF made a statement this week that the global financial growth would be the slowest this year’s post the Great Recession. In a reported published by the IMF, they cautioned that global economy is on the verge of a series of hard challenges. To be precise, we are looking at a reduction of 3% growth all thanks to the missteps in policy making.

What else did the report say? The report mentioned the borrowers in corporate sector in emerging markets. They could default as a result of US raising the interest rates. What are the challenges before global economy? Well, a new financial crisis and new credit crunch are the biggest challenges troubling the global economy.

Chinese economy

We are talking about a crisis trilogy here, says chief economist of the Bank of England. He says that the recent events we saw in the Chinese economy are just the beginning of a bigger crisis. Speaking of Chinese economy, ‘China is Not Game for a Federal Rate Hike” – click here to read more.

As for China’s growth, it was nothing but an unstoppable miracle for the past 30 years. But like every other good thing, it has finally come to an end this year. The latest crisis in China is the 3rd in line after 2008 and 2011.

Without any doubt, China can no longer dream about growth rates in double digits. But what does that mean for growth? At the end of this commodity boom, who is going to incur maximum losses?


History repeats itself

Can you believe that it’s been almost 50 years since a South America meeting for the IMF? So, when did the last meeting happen? It happened way back in 1967 in Brazil; to be precise Rio De Janeiro. A French lawyer named Pierre-Paul Schweitzer was the one in charge of that meeting. They created an elite club of currencies named SDR.

Speaking of the recent meeting, yet another French lawyer named Christine Lagarde was at the helm of the affairs. Once again, it was a critical point for the IMF. At this juncture, quota reform was the need of the hour. Moreover, IMF’s suggestions for Greece were not given prominence.

The Asian Crisis

That brings us to the case of the Asian crisis back in the 1990s. Dollar was so strong back then that, the rich western countries became even richer at the cost of these emerging Asian countries. In this process, the currency value of these emerging markets suffered badly. So, we can’t blame the pessimists for drawing comparisons between the current crisis and the Asian crisis. How to reduce the impact? Well, as per optimists, flexible exchange rates played a big role in reducing the impact of the crisis. Moreover, the foreign reserves played their role in averting a bigger crisis that was looming.

It would be interesting to analyze the past crisis as it had very little impact on the advanced economies. However, that is not the case anymore as the emerging markets are controlling the global growth now. But one thing is definite; a lower growth is imminent.

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