Governments all over should start keeping tab and taking concrete precautions in the midst of the economic drivers out to bring either opportunities or threats to its socio-economic well-being of the business environment and its people. The 2008 global financial crisis spawned by the Wall Street stock market crash is running tsunami-like in its devastating effects not only on the economy of the United States but those of other countries as well.
Regardless of the cause of the burgeoning economic crisis, people have started to realize that its immediate and long term effects will be difficult and hard to confront, let alone ignore altogether. The crisis hurts where it is most painful and the people most affected ironically are those already suffering the brunt of artificially-created crisis like corporate frauds, billion-dollar Ponzi scams and illegal financial dealings.
Indeed, the world’s fragile economy is being hit many times over that it has become difficult to imagine how businesses striving hard to stay afloat can survive even the most superficial impact of the downturn. Analyzing the root of the crisis, many sectors, including US President Barack Obama align the economic woes of the crisis to the uncontrolled greed and irresponsibility of Wall Street executives of financial institutions, who were twice admonished by the President for providing themselves bonuses out of the bailout funds earlier granted.
The darker side of the crisis was made worse by the series of financial scams perpetrated by former Wall Street bigwig Bernard Madoff who ran off with about $50 billion worth of investment funds and another billion dollar Stanford case. These are just two of the 48 cases of frauds committed along Wall Street. It has become moot and academic that the economic crisis has been caused by more than just accounting errors and manipulations. These acts of frauds definitely arose from the creative minds of some highly intelligent finance managers who thought these can be kept for long or can cure itself in the long run.
Many believe that this is an issue of professional values getting into the economic equation of every vulnerable and unsuspecting economic unit. While the stock market continued to experience a roller coaster trading trend, the mortgage housing and credit card crunch suffered a blowout and appeared to have aggravated the downturn with a lot of homeowners unable to meet amortizations and so with credit card payments. Foreclosures and credit squeeze haunted the subprime mortgage market further made worse by the prospects of lay offs due to production cut and weakening market demand.
These twin phenomena were like economic tsunamis coming from opposite directions plunging the middle class to more uncertainties. Even the list of tycoons were not spared as their ranks decreased in numbers (Forbes, 2009) Employment, for one, took a devastating blow when the 2009 the first quarter statistics showed an increase in the number of people out of work hitting 5. 7 per cent in December 2008– still among the highest during the last two decades since 1983. (USA Today, 2009) Richard Fisher, the President of Dallas Fed fears that the 8.
5 per cent unemployment rate registered this March will further deteriorate to double digit at 10 per cent towards the end of this year. (Ros Krasny/Reuters, 2009). Already, the economy lost 5. 1 million jobs, 3. 3 million of them during the last five months. (AFP, 2009) He further described that the men and women who operate the country’s business are on a “defensive crouch”. This translates into a grim outlook for the US economy as the tentacles of the crisis continue to seep through the deep chasm created by the recession.
Among the unemployed, about 22 per cent were out of work for a long time indicating almost zero income for this sector. Unemployment affects significantly society’s purchasing power which will result in the slack demand for goods and services as people start to shun spending for semi-luxury and luxury items. The chain of displacement effects continues as factories respond with slack production orders. Here, recession gets worse sowing further fears of a major depression claimed to be much worse than the 1930 Great Depression.
Thus, as the US government anticipates severe recession, it had to act fast and maintain the economic demand for goods and services by jumpstarting the US economy with an $800 billion stimulus fund. Demand affects production, as production responds to market demand. Thus, the stimulus find is expected to intervene and pump in money where it has gone dry – the purchasing power of the consumers. Thus, the bailout becomes even more controversial with the Wall Street executives dipping their hands into the funds and entitling themselves with bonuses as “rewards” for being in the “middle of the eye of the perfect financial storm.
” Contributing partly to the unexpected dislocation of fragile economies is the continuing volatility of the prices and supply of oil and other petroleum products currently pegged at $48 per barrel. Although this is still considered very low compared to an all time high of $140 per barrel midway in 2008, the increasing uncertainties of market volatility of this critical economic good continues to sow fear among countries entirely dependent on the commodity for economic survival like Japan, China and many European countries.
Perhaps, a good part of the economic effects of the oil crunch is the increasing focus on the development of hybrid cars and those models running entirely on hydrogen. Honda Motors leads the industry in the development of this prototype. Thus, increasing trend of innovation along cheap and renewable energy is similarly creating fears among oil producing nations as dependence on fossil fuels gradually decreases with alternative sources of energy like geothermal, wind, tide, nuclear and solar.
While the shift from oil-based economy to alternative energy remain far, this prospect is used by the oil producing nations as a issue to take advantage of such oil dependence to rake in petrodollar profits in the volatile market. Thus, the grim picture of the world’s biggest economies continue to dominate the economic landscape and fears that this scenario will continue to pervade the horizon remains palpable and toxic for the average consumer. Solutions in terms of bailouts and stimulus funds provided by those severely affected will somehow mitigate the hurt caused by these emerging new economic drivers.
For one, upscale lifestyles will be dampened and made discreet, especially by those who belong to the industries that expect to confront the gallows of the crisis – one of which is the automobile industry. The marginal sector of society that is almost entirely dependent on aid, grants and donations may expect some degree of funds becoming scarce and even dried up. Tourism is likewise expected to suffer a crunch as people trim down on travels and luxurious lifestyles until after the economic deluge abates.
People will look closely into the value of the products and services that they buy as they would start equating the value of what they pay with what they get. Multinational companies will continue to seek cheaper grounds for their production and market distribution processes and those host countries that are fast enough to visualize or even visionize and respond to the new opportunities created by the crisis, will ultimately be the winners in this game of economic crisis. In fact, notwithstanding the losses incurred by every sector, the current economic scenario is something that is unavoidable at this point.
While many sectors continue to be adversely affected, the hard lessons however, will pervade the whole economic spectrum as people will realize that resources are indeed perpetually scarce and will remain so for a long time. People hence, need to practice prudence and thrift even in the most difficult times. Other sectors perhaps shall in no time realize that frauds and greed do not pay at all. Ethics in business shall hopefully bring a new hope that a socially responsive balance scorecard (Kaplan & Norton 2004) type of business decisions shall become the new order of a post global economic crisis.
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