Author Name: Neha Dhamija

The current state of Global Economy can be compared to that of a giant ship that existed, by the name ‘Titanic’. This huge object was projected as something that was ‘unsinkable’. The makers of this water vessel wouldn’t have thought that it was going to vanish into seawaters to be discovered decades later. Anyone who had predicted a similar fate on the start of its voyage would definitely have been declared ‘insane’. However, the most unexpected and unthinkable possibility became true sometime after. Similarly, imagining Global Economy in a trapped situation (as it is now), just a few months back was something ‘never thought of’. However, this is the very reality of today. To top it all, the most affected victim is the nation that boasted once of its strong economy i.e. US.

Moral of the stories is to analyze the chances of success and failure for every step taken, considering every miniscule factor that ‘might count’. This is because even a small hurdle can raise its head over a period and easily go beyond control if left un-evaluated. In case of Global Economy, granting debts to people with poor credit history and bursting of the Real Estate bubble in US have been dug as the root causes. What followed are the trembling effects of this ‘economic-quake’ in Global Economy. Organizations that held chunks of global economy like Lehman Brothers, AIG to name a few, came crumbling down. FIIs started pulling their investments from the stock markets of various nations. This exerted stress on the stock markets of these countries causing the indices to nose-dive. Steel industry is tackling the 30% dip in the prices. Gold has come at around $800, which is about 20% more than the peak value.

The consumer balance Sheet is distorted due to too much borrowing and too less savings. Consequently, consumer spending is to go down in US, for the first time since 1991. Government savings will see a dip and that of consumers will show a rise. The required correction on the consumer balance sheet is possible by expenditure on part of the Government to expand the Budget Deficits. The current account deficits of countries are mounting continuously. In the month of October, Baltic Dry Index (an indicator of shipping volume) went down by 50%, in a single week. This was because exporters could not easily obtain Letters of Credit due to the tightening credit situation. Inflation too went up and touched historic highs in many countries. All these indicate the troubled surroundings Global Economy has been through. Despite declarations like billions of relief packages, decrease in interest rates, reserve requirements and bank-lending rates to correct the global economy, the conditions seem too stubborn to improve. A drop of $40 in crude oil prices further reflects the sluggish move of capital markets towards the Global Economy. It will be a long time, for sure when the ratios and indices are under control again and Global Economy is back on track. Till then, one can only try to ‘move with the tide’.