Global Financial: Economic Crisis, Essay Example

The global financial crisis which dominated through 2007-2008 shook the world’s economic pillars. Modern economists rated the crisis as the worst economic situations in the world since the 1930, which experienced the Great Depression. Within the affected economics, the crisis took both the micro and macro economic impacts in the subject nations[i]. During its development, the crisis threatened the collapse of giant financial institutions and international security exchange markets around the globe. In addition, destabilized financial environment presented situations of increased unemployment, housing foreclosures among other economic predicaments.  The short period of the global crisis development resulted in the decline in major commercial industries, decrease in the overall consumer wealth and a subsequent decline in global economic activities[ii]. As a result, the slow economic growth for the past five years has caused a global recession witnessed by economic predicaments like EU foreign-dept among others. Development of this economic situation called for mechanisms meant to protect the interests of concerned parties. In this regard, national governments and regional blocks responded by manipulating economic practices in a manner that will neutralize negative effects caused by the crisis.

With respect to the economic crisis, most nations adopted either mercantilism or protectionist measures in order to elevate their economic status. One of the nations with significant changes in their economic patterns in the last five years is China. Most of these changes aim at cushioning domestic economy from the effects presented by global recession. As an economic theory, mercantilism operates with the principle that in order for one nation to benefit, another one has to lose some of its economic power. Mercantilism supposes that there is a distinct operation between the state and the market in establishing a stable economic environment. According to this theory, state authorities are responsible for establishing and regulating a market. On the other hand, the prosperous market helps to keep the state and its citizens prosperous. In this context, China seems to employ numerous principles of mercantilism and protectionism in addressing its economic situations. In the recent past, there has been an increase influence of the government in encouraging domestic production within China. In June 2012, China’s president directed a proportional cut in bank-lending rates. This aims at encouraging state companies and domestic investors to obtain funds for investment. In addition, China’s current economic policies lie in favor of domestic consumption as opposed to export industry. In October, the Communism Party stipulated policies meant to provide a level playing field for entrepreneurs by setting interest rates to favor the amateur investors. This seems to take root in rural population, which comprise of mostly the poor members of the society. In this regard, China seeks to improve efficiency and domestic spending in order to create a prosperous market. In turn, the prosperous market will serve to carter for the needs of the Communist Party.

Apart from mercantilist measures of responding to economic changes, other nations want to maintain a liberalized economy through adoption of commercial liberalism. Much of principles and policies of commercial liberalism exist in agreements relating to the post-war liberal international economic order. In this regard, nations adopting these liberalism agreements still commit efforts towards creation of a liberalized economic platform. Commercial liberalism subscribes to the aspect of market in developing a fair and capitalistic economy. According to this theory, economic forces of supply and demand work towards shaping the market. In this case, government authorities and regional blocks should exert minimal or no interventions to economic affairs. In fact, liberal theory postulates that natural economic forces works better in shaping a region’s economy that any artificial government laws. In this context, US seem to adopt the natural laws of economy in establishing its market. There are no policies discouraging foreign investment in both the state and federal institutions. Because of this unregulated market, US economist attributes the influence of China’s financial inflow into the US for the nation’s slow economic growth. Statistics shows that Chinese investors increased the purchase of dollar assets in the US. This created a situation where China’s currency remained low in value, hence favoring its export industry. On the other hand, low value of China’s currency kept America’s interest rates low. This created inflation due to higher price of accommodation facilities and real estate assets. In this case, The US maintains its commitment to operate a liberalized economy despite negative effects resulting from the market forces. Therefore, America plays a great role in ensuring maintenance of the post-war liberal international economic order.

Still on commercial liberalism theory, integration of state and market elements in shaping economy differs from that of mercantilism. In mercantilism, like in the case of China, the Communist Party tries to shape the nation’s market by lowering interest rates and encouraging domestic consumption. However, liberalism asserts that states of involved parties should link their policies in an effort aimed at facilitating operation of the natural laws of supply and demand in the market. The US and China’s government operates under common trade policies in encouraging free trade of goods between the two nations. As a result, laws of supply and demand work interdependently in shaping the market. Based on these two theories, the basic tenet of mercantilism asserts in the need for government’s intervention in shaping the market for its products. On the other hand, liberalism advocates for separation and distancing of government authorities in shaping any given market.

Bibliography

Lawson, Tony.”The current economic crisis: Its nature and the course of academic economics”. Cambridge Journal of Economics, 33 (2011): 759-762.

Martin Greg. “Commentary: Globalization and the epidemiology of HIV/AIDS”. International Journal of Epidemiology. 30 (2009): 126-131.

Thakur Ramesh. The United Nations, Peace and Security: From Collective Security to the Responsibility to Protect. New York: Cambridge University Press, 2010.

D’Anieri, Paul. International Politics: Power and Purpose in Global Affairs. New York: Cengage Learning, 2011.

Wessels, Walter, J. Economics. New Jersey, NJ: Barron’s Educational Series, 2006.

[i] D’Anieri, Paul. International Politics: Power and Purpose in Global Affairs. New York: Cengage Learning, 2011.

[ii] Martin Greg. “Commentary: Globalization and the epidemiology of HIV/AIDS”. International Journal of Epidemiology. 30 (2009): 126-131.