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Economic Crisis

1. The global economy is weak and stagnating, yet policymakers seem unable or unwilling to take decisive action to stimulate growth. 2. Both austerity measures and government stimulus could have negative consequences - austerity may lead to slow growth and high unemployment, while stimulus risks further credit downgrades. 3. Known economic problems include high unemployment, slow growth, declining wealth, and social strife in the US and Europe. The tools of monetary and fiscal policy appear powerless to solve these issues.

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Aayush Kubba
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39 views2 pages

Economic Crisis

1. The global economy is weak and stagnating, yet policymakers seem unable or unwilling to take decisive action to stimulate growth. 2. Both austerity measures and government stimulus could have negative consequences - austerity may lead to slow growth and high unemployment, while stimulus risks further credit downgrades. 3. Known economic problems include high unemployment, slow growth, declining wealth, and social strife in the US and Europe. The tools of monetary and fiscal policy appear powerless to solve these issues.

Uploaded by

Aayush Kubba
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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FOM Assignment 1

Q1. Define management. Differentiate between management & administration. Q2. Enumerate the functions of management. Q3. Case Incident :

CSE Sem 3A

No Secrets In America's Latest Economic Crisis: Weak Economies, Weak Leaders


Three years ago, the last time we experienced the stomach-churning spectacle of stock markets swiftly annihilating trillions of dollars in household wealth, the unknowns were at the center of the fear. Thanks to a lengthy experiment in radical deregulation, no one really knew the size of the wagers that Wall Street's leading financial institutions had constructed out of home mortgages, or what would happen to their balance sheets as large numbers of homeowners fell into delinquency. But this time, as stock markets again lurch wildly and panic circumnavigates the globe, what we do know is at the center of our problems: The global economy is weak and still weakening, while policymakers seem unable or unwilling to marshal a reassuring response. From the United States to Europe to Japan, economies are stagnating, and governments are tightening the straits by cutting back on spending, urged on by the same credit ratings agencies that played leading roles in getting us here. Tuesday afternoon's pledge by the Federal Reserve to keep interest rates low for at least another two years is merely an acknowledgement of this disheartening reality and does not alter it. The catalogue of knowns offers little in the way of comfort. The American economy appears increasingly vulnerable to falling into another recession, yet leaders in Washington are missing in action. The Republicans are content to watch fiscal and economic troubles of their own making burgeon into a conflagration, betting that an unsophisticated electorate will blame the current occupant of the White House come 2012. A President famous for his oratorical powers now seems like a mute caricature of his former self, recycling marginal policies while lamely insisting that forces beyond the government's control are responsible for the storm. "There is something of a leadership failure," Martin N. Baily, a former chairman of the Council of Economic Advisers in the Clinton administration, and now a senior fellow at the Brookings Institution in Washington, pronounced in an interview on Tuesday. "We need someone, whether like a Franklin Roosevelt or a Ronald Reagan, who can inspire confidence." We know that another recession would hit at a time of 9 percent-plus unemployment, and with the social safety net ravaged by cuts. We know that the United States is effectively in a box following the downgrade of the federal government's credit rating by Standard & Poor's late last week. The government cannot spend money to stimulate the economy without increasing the likelihood of further credit downgrades, which would invite new destabilizing consequences. Yet without some form of government intervention, the markets are left to take in the unobstructed view of an economy lacking any momentum. We have hit a fork in the road, and both routes lead somewhere we do not wish to travel. The road we are on now -Austerity Avenue -- heads out for many years to an unchanging scenery of high unemployment, slow growth, diminishing wealth and social strife. The other, Stimulation Lane, runs smack into Downgrade Ditch, a messy place from which escape

is not certain, a place where interest rates could spike throughout the economy and we could quickly wind up back in recession. The ironies here run in the cruel variety: Standard & Poor's and its credit rating brethren, Moody's and Fitch, played starring roles in creating the last financial crisis. They advised investment banks on how to turn lousy mortgages into complex securities that could garner their top ratings, collecting handsome fees in the process. Now that Uncle Sam needs fresh credit to tend to the economic mess that has resulted, the ratings agencies have become sticklers for financial details. These are merely the unfortunate things we know here in the United States, yet we also know that financial strain is a global problem. European authorities have twicw rescued Greece from the prospect of default on its outsized debts. And still no one seems to believe that the Greeks -- forced to swallow sharp spending cuts as a condition of aid -- can possibly grow enough to keep current on what they owe. We know that similar worries dog Spain and Italy, where interest rates have been soaring, prompting theEuropean Central Bank to step forward on Monday and start buying up their bonds in a campaign to instill confidence. That move sent interest rates down a tad, but not enough to dislodge the sense of crisis. Few expect the European Central Bank to play backstop for the duration. The bank has long expressed reluctance to step directly into the fray, preferring that the continent rely on a special bailout fund established to shore up the finances of flagging members. And the market grasps clearly that the fund is stocked with 440 billion Euros -- a large amount of money, to be sure, yet not nearly enough to rescue Italy and Spain, were a default scenario to present itself. "We are skeptical that this intervention tactic can end well, or even last very long," said Carl B. Weinberg, chief economist of High Frequency Economics, a research firm, in a note to clients Tuesday morning. As Weinberg quickly added, the arsenal available to the Europeans in event of a rescue is really just a sideshow. The thing the market sees most clearly is a simple story with no good ending in sight: lots of debt, no apparent path to economic growth and a tendency toward higher interest rates, which intensifies the pressure. "We see a broad credit crunch corseting many economies at once," Weinberg said. "Central banks have been unable to make money or credit grow since 2008. To be sure, potentially catastrophic hits to the balance sheets of bond-holding Euroland banks will not encourage them to lend more. So maybe the global equity market slide is not without reason. For without money or credit, there can be no economic growth." The same observation applies to the United States. Ever since the financial crisis arrived in 2008, the Fed has kept interest rates near zero, operating on the established theory that, when money is free, it is more likely to be lent and borrowed, boosting economic activity and job growth. Only this time, would-be employers are focused on another known: their would-be customers have lost spending power and appetite for risk, limiting sales. So the economy stagnates, unemployment remains high and the government declines to boost demand for goods and services with fresh spending, fearing the reprimand of the credit rating agencies. This is a state of play that could last a long while. "The tools of monetary policy and fiscal policy seem to be powerless," said Baily, the Clinton administration economic adviser. The only thing lacking in the unraveling underway is a sense of mystery. That, and a sense of urgency from our elected leaders, for whom the unemployment epidemic has apparently become a known factor, already priced into their political calculations. Questions : a. b. Another recession may hit. Why? What is/are the reasons for unstabile interest rates? (Use examples from the case).

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