The global crisis
The folly of free market economy and globalisation could not be exposed in a more disastrous way than the fall of Wall Street and the credit crunch. The preachers of free market economy had been so blind to their dogma of opening the market that it always questioned the common sense.
Especially in the USA, when the manufacturing industry was gradually dismantled through the access of abundant Chinese goods, the preachers of globalisation remained ambivalent to the basic facts that American working class was losing jobs. Protectionism was touted as the most heinous sin. American economy gradually turned to be service based. And the
US dominated the emergence of global IT industry. But, even the service sector and IT industry have been allowed to move to India. As a result of that, the US economy was supposed to recede. But the economy was put on steroid through debts which allowed people to pursue their American dream--buy houses, cars and travel to Bermuda. Even the year before, when the economy started to slow down, the response from the government was to put more money in the hands of consumers, so that they could spend more and the economy would not collapse.
So far so good. But, now the regulators have drafted an unprecedented 700 billon dollar rescue plan and lawmakers are hurrying to draft law to regulate the Wall Street. But, there will be hardly any respite. Because these 700 billion dollars will be used to rescue the big financial institutions to allow them to generate more credit in the market. But, in the first place, the US economy has weakened by losing its manufacturing base and intellectual work force to China and India. In the long run, it will only help get business confidence back but it will not create jobs which is actually the fundamental problem of that economy. Still the fundamentals of the US economy remain strong (although John McCain is receiving lots of bashing for stating that fact) and US population will not starve to death due to vast resources that the country has at its disposal. But, the spending power of the US population will certainly be curtailed by their shrinking ability to generate jobs and income.
Some people have started questioning the obvious limitations of unregulated market economy. Current consensus among the US lawmakers is that the economy should be regulated and a regime of protectionism is on the cards. Although economists in the East(including our country) were perennially anxious about these obvious effects, the US, through their pet IMF, World Bank has already pushed the idea of absolutely opening the gates at our throat. Protecting the manufacturing base of a country is a defeated idea now. Almost every economy in the world has allowed the Chinese goods to inundate their market at the expense of their own manufacturing industry. Millions of people around the world have lost jobs but nobody cared until the Giant fell in its own trap!
Few analysts even believe the worst of Wall Street has not yet come. And that the second wave of destruction will come from bad debts resulting from credit cards.
The open market economy, globalisation are all good things. But, every economic dogma must be balanced with regulation. Free market economy drives the free greed of people. The desire is to get more. Now the policy makers of the West are slowly realizing the folly of their misdeeds and gradually they are warming to the idea that unregulated market has led to the collapse of Wall Street and markets around the world.
Is there anything that we and our stock market need to learn ? Yes. There are very simple lessons we need to learn from it. That is , you can't borrow more than what you earn. And , if you buy something at a massively inflated price due to favourable market condition, there will be none to buy your stock/product when the market will correct itself. And, you will have only yourself to blame!
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